October 31, 2016 Read More →

On the Blogs: ‘Is the Era of Oil Mega Projects Over?’

Irina Slav for oilprice.com:

BP said earlier this year that its capex for 2016 would come in at less than the US$17 billion it had initially planned for the year. Shell boasted a 20-percent cut in its capex for 2015 from 2014, to US$29 billion. Exxon in March said it would be reducing its capital budget for the year by a quarter to US$23 billion. To make a long story short, everyone in Big Oil is slashing spending, which is nothing new given the lower for longer price environment.

The new bit is that these cuts are no longer just a knee-jerk reaction to low oil prices—they are the core of a new strategy.

It’s getting increasingly obvious that this price crash hurt oil supermajors more than previous crashes. Perhaps this is only natural: the amount of new discoveries made every year will decline over the decades, as oil is, sadly for many, finite. What’s more, however, these supermajors had been splashing growing amounts of money on new exploration, the results of which have only been getting worse.

Back in 2013, when the going was still pretty good price-wise, BP, Chevron, Shell, and Exxon all posted hefty drops in net profits for the second quarter, suffering the effects of falling reserve replacement ratios. If things were so bad three years ago, imagine what the picture looks like today.

One recent report from the Institute for Energy Economics and Financial Analysis, an energy and environment think-tank, warns that Exxon’s financials are far from tip-top, and if the problems are not addressed, the company may be on a course to irreversible decline.

The report cites a 45-percent drop in Exxon’s annual revenues over the last five years and an increasing dependency on long-term loans to maintain dividend payouts. One could argue the report is biased against Exxon, but the figures are publicly available for anyone to double-check their truthfulness.

Since Exxon is not operating in a vacuum and dividends are the holy cow of Big Oil, it’s safe to suggest that the financial picture in its co-supermajors is pretty similar. The good news for them is that they are starting to wake up to the fact that the era of megaprojects worth billions is over.

Full item: Is the Era of Oil Megaprojects Over?

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