A heavy tide of red ink and prospective delays to new project are expected to weigh on the results of oil and gas majors that kick off this week with Woodside, which is to release its December-half results on Wednesday.
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Woodside has already flagged $1 billion in asset impairments but the focus is on a further round of spending and investment cuts as it, and others in the industry, prepare for continued low oil prices.
All companies in the sector have cut employee numbers and deferred spending, where possible, securities analysts said.
"We expect this thematic to continue," Citi analysts told clients in a note, with further measures to be taken to survive lower oil prices for longer that may include reserve downgrades amid the prospect for further impairments.
Woodside's Browse project may have only marginal returns of about 10 per cent at the present forward oil price, Citi warned, although partners in the project are committed to continue development work "based on expectations of a higher oil price longer term", Citi said.
Other projects, such as Greater Enfield, were marginal with a higher oil price, Citi said, with Woodside pursuing capital spending savings for it to progress.
Even for Oil Search, which has ramped up production at its gas export project in Papua New Guinea, there is caution about the near-term prospects for further expansion.
Late last week, oil major Total SA warned that changes to the global gas market may make it difficult to launch new export gas projects. It is planning to develop the Elk/Antelope project in PNG with InterOil Corp.
The low price of oil, which has also pressured gas prices, forced Total to book $US5.4 billion of asset impairments in the December quarter that came from basically the Gladstone LNG project in Queensland on which it partnered with Santos, it told analysts.
"LNG markets are shifting clearly from a seller market to a buyer market," Total chairman and chief executive Patrick Pouyanne told analysts. "For launching new projects that we have in Papua New Guinea, which is a low-cost project and very well positioned, we need to find new customers ... to go beyond the traditional buyers in China and in south-east Asia."
Total also has a large stake in the Ichthys gas project in Darwin, where the start-up has been delayed until September 2017.
"Is it conceivable that Oil Search would need to either raise equity, farm down its interests or delay LNG growth," Citi analysts asked.
A concern is that gearing could expand to more than 50 per cent by 2021 as it pursues its expansion agenda, which may force it to raise additional equity.
The price of crude oil gained late last week, buoyed by speculation of prospective collaboration between Russia and OPEC to reduce output, although a deal is unlikely.
"A deal is improbable given the battle for Asia market share between Russia and Saudi Arabia and the uncertainty associated with the return of Iranian" exports, RBC analyst Ben Wilson said.
Pressure on high-cost oil producers to cut output has risen along with inventory levels, which rose more than 20 million barrels in the United States alone during January, with US oil production continuing to run near 9.2 million barrels of oil a day.
One positive sign for the oil sector was a further decline in the US crude oil rig count, which fell a further 14 per cent in the past week, and analysts expect this will result in the market moving closer to balance near the end of 2016.
