By Benoit Faucon and Sarah McFarlane 

The world's largest energy companies are negotiating production cuts with oil-rich nations ahead of Friday's deadline for OPEC and the Group of 20 countries to sharply reduce output -- reductions that will limit these firms' options for coping with the crude-price rout.

Earlier in April, Saudi Arabia and Russia ended a price war and joined forces with the Organization of the Petroleum Exporting Countries and other oil-producing nations, agreeing to cut global output by 13% or about 13 million barrels a day. Big oil companies that produce in these countries, including BP PLC, Chevron Corp., Occidental Petroleum Corp. and Royal Dutch Shell PLC, will have to shoulder some of those cuts.

Nigeria has reached out to Chevron and Shell, according to Nigerian oil officials. Oman has ordered Occidental to reduce its production at each of its fields by a total of 58,000 barrels a day.

BP has been asked to reduce production in locations including the Middle East, Angola and Azerbaijan. The company said it hasn't fully shut production at any of its businesses, but was looking at how specific fields and exports would be affected.

"We are working through that level of detail right now -- and of course the first of May [the deadline for countries' production cuts] is approaching very, very quickly," BP Chief Executive Bernard Looney said Tuesday.

He added that Russia was taking steps to reduce output in line with the deal. BP has a 20% stake in Russia's top producer, Rosneft Oil Co.

The oil-reduction pledge follows a 50% decline in crude prices over the last eight weeks, resulting from the combined impact of the Saudi-Russia price war and a collapse in demand amid the coronavirus pandemic.

BP, the first oil major to report quarterly earnings for this year, said its debt had increased and signaled a negative outlook for the April-June period, underscoring the early impact of the rout on the industry.

Shell said Thursday it expected its oil and gas production to fall to between 1.75 million and 2.25 million barrels of oil equivalent a day in the second quarter from 2.7 million barrels a day in the first quarter. The company said it saw 40% of the drop resulting from the OPEC-led cuts.

CEO Ben van Beurden said Shell had been "approached by counterparties -- national oil companies, governments -- who in the OPEC-plus setting have committed to curtailments." He said the company must navigate between demands from these governments and the need to respect antitrust provisions.

Algeria, the United Arab Emirates and Kazakhstan have also reached out to foreign oil companies regarding plans to reduce production, officials in these countries and other people familiar with the matter said this week. Chevron, Eni SpA, Occidental, Shell and France's Total SA are among the companies operating in these nations, including through joint ventures.

Norway said late Wednesday it would curtail production by 250,000 barrels a day in June -- the first country outside the OPEC-plus alliance to announce compulsory curbs. The decision is set to affect Equinor ASA -- the Scandinavian country's national oil champion -- along with Total, Shell and ConocoPhillips.

Chevron said its 50%-owned venture in Kazakhstan, Tengizchevroil, "continues to produce according to the business plan." In Nigeria, the U.S. company said it was working with its partners to "explore ways of reducing costs and adjusting production."

Eni, Occidental and Total declined to comment.

Nigeria reduced its output by 417,000 barrels a day in April, ahead of the pact's start date, and some wells have shut, said the West African country's oil minister, Timipre Sylva.

American companies are being forced to shut down wells in costly shale reservoirs in the U.S. where they have focused in recent years.

About 27% of Occidental's output is outside the U.S., while around 15% of Chevron's oil-equivalent production in 2019 occurred in the OPEC members of Angola, Nigeria, the Republic of Congo and Venezuela. The company also has substantial exposure to Kazakhstan.

European oil companies are even more exposed. About half of the annual barrels BP pumps come from Africa and Asia -- where most major producing-countries have joined the 23-nation OPEC-plus alliance. Italy's Eni and Total derive 75% and 68% of their oil production, respectively, from these two continents.

While the OPEC-plus effort may put a floor under plummeting oil prices, it also means some companies will have to make cuts in addition to those planned. Last week, Eni said the move could add more curbs to its already downgraded production plans for this year.

Price collapses often prompt energy companies to cut output from locations where production costs are highest. Suncor Energy Inc. and Total, for instance, recently cut production at their jointly held Canadian oil sands mine in northern Alberta.

OPEC members, where production costs are among the lowest in the world, aren't necessarily where they would choose to cut back.

"If you happen to be in the Middle East, unfortunately that is lower-cost oil production that you may be forced to shut by the government," said Irene Himona, managing director for oil-and-gas equity research at Société Générale.

--Summer Said contributed to this article.

Write to Benoit Faucon at benoit.faucon@wsj.com and Sarah McFarlane at sarah.mcfarlane@wsj.com

 

(END) Dow Jones Newswires

April 30, 2020 11:38 ET (15:38 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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