* BP has to share Azeri output cuts burden
* Kazakhstan in tough talks with Chevron, Exxon, Shell, Eni
* Output cuts add to pain of low oil prices, poor fuel sales
* Oil majors to see steepest output fall in Q2 in decades
By Olga Yagova, Alla Afanasyeva and Dmitry Zhdannikov
LONDON/MOSCOW, April 28 (Reuters) - From Kazakhstan and
Azerbaijan to Nigeria and Angola, oil majors are haggling with
national governments over how to share out deep production cuts
that add to their pain from low oil prices and depressed fuel
sales because of the coronavirus pandemic.
Oil majors have traditionally escaped big cuts in OPEC
nations, such as Nigeria, and have never experienced curbs in
countries outside the OPEC club, such as Kazakhstan, where they
are protected by special clauses agreed with governments.
But those production sharing agreements (PSA) are being laid
aside following a pact between the Organization of the Petroleum
Exporting Countries and its allies (OPEC+) to cut production by
23 percent to bolster prices as coronavirus lockdowns reduce
global energy demand by a third.
Such unprecedented output reductions, effective from May 1,
are impossible in most nations without the help of majors.
"We do expect to see volumes reduce in the second quarter
because of the OPEC+ agreement," BP's chief executive Bernard
Looney told a conference call on Tuesday, as the London-based
company reported a plunge in profit and a spike in debt.
During the last oil price crash in 2014-2016, integrated
majors, such as BP, suffered a decline in earnings from
their upstream or oil production units, but were saved by strong
downstream results as consumers profited from cheap fuels.
This time round is different.
BP said it expected significantly lower refining margins in
the second quarter when global restrictions on movement to halt
the spread of the virus reach their peak, throttling consumption
of gasoline, diesel and jet fuel.
Add to this, forced production cuts across the world, and
majors face a perfect storm.
BP, Royal Dutch Shell, Total and Eni
have showed steady output growth in recent years often
surprising on the upside as they tried to lure investors with
solid performance and generous dividends to offset pressure from
climate change activists.
It is not yet possible to predict exact production cuts as
majors and many governments are still locked in difficult talks.
They could amount to a record-high hundreds of thousands of
barrels per day (bpd) per major, or 5%-10% of their output based
on the exposure to OPEC+ nations and activity in the United
States and Canada, where output has also been falling.
Analysts from Barclays said BP's first quarter production
was 1% below their forecast and down 3% year-on-year. Jason
Gammel from Jefferies said BP's second quarter output was poised
to be even lower.
WEEKS OF TALKS
Azerbaijan asked its main giant offshore consortium to cut
output by 80,000 barrels per day, resulting in a net cut for
operator BP of around 30,000 bpd.
"We have never done it before since they came to the country
in 1994," a senior Azeri official told Reuters.
Looney said BP was also in talks with Russia, where it holds
20% in oil major Rosneft, and with Angola and in the
Middle East.
In Kazakhstan, ExxonMobil, Chevron, Eni,
Total and Shell have all been in talks with the government over
cuts at three giant projects - Kashagan, Karachaganak and
Tengiz, five industry sources said.
The majors produce 60% of Kazakhstan's output of 1.7 million
bpd, making it impossible for the country to meet its OPEC+ cut
quota of 390,000 bpd without the majors.
"Kazakh authorities hired lawyers and have been trying to
figure out how to force PSA projects to cut. It's been two weeks
of non-stop talks", a source familiar with the talks said.
In Nigeria, Shell and other majors are also holding talks
with national oil firm NNPC on reducing onshore and offshore
production, according to seven trading sources.
"Nigeria and other West African exporters have no choice now
but to cut down on shipments," one trading source said citing
poor demand and loss-making prices.
Shell and Total will have to share the burden of the 285,000
bpd cut by Oman while Iraq is still talking to majors, such as
Exxon and BP, on the exact split of its 1 million bpd cut.
Beyond OPEC+, more than 600,000 bpd of cuts have already
been announced in the United States, some 300,000 bpd in Canada
and 200,000 bpd in Brazil - areas where majors are also active.
(Additional reporting by Ron Bousso, Julia Payne, Noah
Browning, Florence Tan, Mariya Gordeyeva; writing by Dmitry
Zhdannikov; editing by Barbara Lewis)
BP (BP.)
