While oil and gas companies have slashed their budgets in reaction to cratering oil prices, they probably have further to go, an energy analyst said March 24. At the same time, low oil prices make renewable energy projects competitive with oil and gas projects, opening a window for producers to begin their transition into a low-carbon world, experts said.

"The last few weeks have been totally unprecedented," Valentina Kretzschmar, director of corporate research with energy consultancy Wood Mackenzie, said on a webinar hosted by Houston-based Pink Petro, a special interest group advocating more diversity in the energy industry.

Wood Mackenzie's data shows that industry costs need to come down 41% to survive in a $35-per-barrel world, and even though more than 50 companies have announced budget cuts, projected spending is only down 30%, Kretzschmar said.

At oil prices of $35/bbl, 75% of proposed oil and gas projects do not cover their cost of capital, Kretzschmar said, and internal rates of return for projects fall into single-digit percentage points, providing a competitive investment window for renewable energy projects that have a larger public appeal.

Even at $35/bbl, producers probably will not shut down the spigot of oil and gas production, Kretzschmar said. "The evidence from previous downturns is that producers don't shut off," the analyst said.

What far-sighted energy companies can do is begin the shift away from fossil fuels toward cleaner renewables, Kretzschmar said. "The incentive is there to shift away from oil and gas [at $35/bbl] which is low-return, high-risk and high-carbon," Kretzschmar said. "Now there is opportunity in renewables; it's a mega-trend."

Anna Howell, a London-based attorney with Gibson Dunn & Crutcher LLP, does not think that a wave of bankruptcies is about to sweep through the shale patch. Howell thinks that producers are already huddling with their lenders and working out debt restructuring to keep everyone as whole as possible.

"Financing was already tight," Howell said. Producers are "talking to their lenders, renegotiating debt."

If the current crisis follows the path of the 2015-2016 oil price crash, Howell expects to see few bankruptcies but plenty of reconfigured debt along with "distressed M&A." Alternative financiers may come in to prop up struggling oil and gas companies, but the price crisis is an opportunity for oil and gas companies to add renewable projects to their holdings, Howell said.

"The new normal will be [environmental, social and governance] with S and G in the back seat," Howell said, particularly if the drop in emissions from the global shutdown for the coronavirus becomes noticeable, adding to pressure for fossil fuel companies to change.