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The prospect of a drawn-out period of rock-bottom oil prices has sharpened the focus on high-cost fields that might be shut down if they become uneconomic, with some smaller fields in Western Australia seen in the firing line.
While they are lower down the list than some high-cost operations in China, Wood Mackenzie has singled out Triangle Energy's Cliff Head field off the coast of Dongara and Buru Energy's onshore Ungani field in the south-west Kimberley region as likely to struggle if the slump continues for long.
Triangle Energy's Cliff Head field off WA is one of the country's higher cost oil producers.
Both Triangle and Buru have in recent weeks announced savage cost cuts as they seek to keep the operations viable.
Wood Mackenzie research director Angus Rodger said that at current prices, a significant amount of Asia's oil production is not cash-flow positive, pointing in particular to oil produced using the "enhanced oil recovery" process in China.
But risks of closure may be higher at other fields across the Asia-Pacific as China prioritises its economy over the "economic logic" of production costs, with the result that most of the country's production is probably safe.
Brent oil prices fell on Tuesday to under $US30 a barrel, and were around $US29.80 at midday Wednesday. National Australia Bank on Wednesday forecast Brent would average $US35 a barrel this quarter.
"As a result we expect drilling budgets to be slashed, opex to fall and operators to do everything they can to get by, and keep the oil flowing," Mr Rodger said.
"Nonetheless, smaller marginal fields like Cliff Head and Ungani in Western Australia will reach the end of their economic life far sooner if current market conditions continue."
Driving down costs
At Cliff Head, which produces about 970 barrels of oil a day, production costs were already cut from more than $US40 a barrel in 2017 to $US24.95 a barrel on average in the eight months to February 2020, Triangle said.
Now it is aiming to force them down to $US15.40 a barrel until the end of June, excluding trucking costs, through pay cuts, negotiated price reductions on suppliers and services and deferred expenditure.
After June they could head back to about $US25 a barrel as temporary rebates come to an end, but Triangle managing director Rob Towner said the company has "no intention of shutting in production".
"I see no reason why you would shut off your revenues," he said, while adding that sustained prices of $US20 would make it difficult for any small producer to survive.
Oil produced at the field, in the offshore Perth Basin 270km north of Perth, is trucked to BP's Kwinana refinery south of Perth.
At Buru's 1400 barrels a day Ungani field, 90 kilometres east of Broome, oil is trucked to Wyndham and stored before being shipped to Asia. The field, which started production in 2015, is half-owned byRoc Oil, now part of China's Fosun International.
Buru has cut its corporate staff costs by more than 50 per cent since the price slump last month, reducing some salaries by 75 per cent and making some jobs redundant.
It said on March 30 that field operating costs were also being reduced and that the global crude market was "being closely monitored by the joint venture in regard to the continuation of production". Prices of more than $US25 a barrel were needed to remain operating cash-flow positive.
Globally, Canada will be the worst affected by uneconomic production, according to Rystad Energy, which estimates that 1.1 million barrels a day of oil sands and heavy oil output will be closed this June quarter.
So far, Canada is estimated to have shut-in oil production of at least 325,000 bbl/day, followed by Iraq (300,000 bbl/d), Venezuela (235,000 bbl/d) and Brazil (200,000 bbl/d), the firm said.
The US is also likely to be shutting in hundreds of thousands of barrels, it added.
Rystad expects 513,000 bbl/d will be curtailed in the third quarter, dropping to 293,000 bbl/d for the fourth quarter.
The risks around some older fields in Australia come amid heightened uncertainty over investments in new projects.
Santos chief executive Kevin Gallagher said last monththat an increase in oil prices would be needed to go ahead with the Dorado oil project in WA, a decision due mid-2021, although development work was continuing.
