BHP sees petroleum output at lower end of guidance amid risks from COVID-19

Australia's BHP expects its 2019-20 (July-June) petroleum production to be at the lower end of its 110 million-116 million barrels of oil equivalent guidance range amid risks related to COVID-19, while its Gulf of Mexico and Trinidad and Tobago projects continue on schedule.

RBC Capital Markets said in a research note Tuesday that it forecasts BHP's petroleum output for the 12-month period at 112 million boe.

BHP's petroleum output fell to 25 million boe in the January-March quarter, down 13% year on year and 11% quarter on quarter, due to the impact of Tropical Cyclone Damien on its North West Shelf operation in Western Australia and the natural field decline across the company's portfolio, it said Tuesday.

The total was made up of 12 million boe of crude oil, condensate and natural gas liquids and 81 Bcf of natural gas. The figures were down by 12% and 13% year on year, respectively.

BHP said its US Gulf of Mexico Atlantis Phase 3 and Made Dog Phase 2 projects remain on schedule for initial production in 2020 and 2022, respectively, adding that the Trinidad and Tobago Ruby project is still expected for 2021 and the Australian Bass Strait West Barracouta is also on track for 2021.

"Across each of our projects currently in execution, additional measures have been put in place to protect workforce health and safety as a result of COVID-19. These projects are tracking to plan and at this point, we do not expect an impact on the timing of first production," BHP said.

However, it did note that in light of the recent significant disruption to oil and gas markets and heightened risk of interruption to field activity, the company is reviewing its capital, operating, exploration and appraisal expenditure programs.

It flagged the recent delay of the Western Australia Scarborough gas development to 2021 -- as announced by Woodside in late March -- and the potential delay of "several small- and medium-sized projects with short life cycles" as resulting in the deferral of production in the 2021 and 2022 fiscal years.

The front-month May NYMEX WTI contract settled in negative territory for the first time ever overnight Monday.

The fall came amid a lack of storage capacity, which forced traders to exit positions ahead of the expiry of the contract later Tuesday.

BHP said global storage capacity is expected to be tested over the coming weeks and months.

"It is possible that differentials for inland crudes that are disadvantaged with respect to storage availability will remain historically wide over this phase of market adjustment. Large and small producers alike have announced sharp cuts in capital spending in response to the price decline," it said.

RBC said that although weak oil prices and the current low storage dynamics remain a risk, BHP appears to be insulated.

"BHP has allocated storage for April and May deliveries and sells its Gulf of Mexico oil as part of long-term relationships with major regional refiners," RBC stated.

BHP saw an average realized price for crude and condensate of $51.19/b in the March quarter.