The radical survival plan outlined by Oil Search on Wednesday serves as an industry portent for what should be an ugly half-year of asset write-downs from Australia's energy producers courtesy of the flagging oil price.
It is becoming increasingly clear that the COVID-led plunge in world oil prices is not just a short-term shock but a medium-term likelihood. As such, it is nearly impossible to see how the corporate regulator, the Australian Securities and Investments Commission, can allow oil companies to retain the book values of their assets at current levels.
Over the past couple of days Royal Dutch Shell has become the latest to revise its asset values to reflect the new reality - announcing an asset write-down of up to $US22 billion including its integrated gas unit and its upstream and downstream assetsBut it was BP which set the scene for industry write-downs when in mid-June it announced up to $US17.5 billion would be taken from the book value of its assets - a less disastrous number than anticipated by Shell.
But in a more immediate sense, investors viewed BP’s moves as part of a cost-cutting strategy needed to improve its financial prospects, given its balance sheet has still not recovered from the financial impacts of the Deepwater Horizon disaster.
Good...lets write down coal as well...lets hasten green energy uptakes.