Oil majors rejigger portfolios with $30-per-barrel price in mind
14/02/2024 12:00
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As renewables advance, companies rush to shed costly
oilfields
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Shareholder payouts taking more cash than capital
expenditures
By Sabrina Valle
HOUSTON, Feb 14 (Reuters) - Oil majors are targeting new
oilfields that can be profitable even if oil prices fall to
about $30 per barrel, using a third year of rising demand to
reshape portfolios amid uncertainty over the industry's future.
Investors have not returned to oil stocks despite recent
high earnings. Even the world’s lowest-cost oil producer, Saudi
Aramco 2223.SE , has joined the rush to cut costs. The shift to
fields with favorable break-even points follows deeper and more
frequent boom-cycles in the last decade. It also reflects
executives' belief that current high prices may not last.
"After three major oil price crashes in 15 years, there is
wide acceptance that another one is likely to happen," said Alex
Beeker, director of corporate research at energy consultancy
Wood Mackenzie.
That uncertainty and inventor demands for returns underpin
executives' focus on buying lower-cost crude production and the
flexibility to adjust output in response to price swings. Exxon
Mobil XOM.N and Chevron CVX.N last year spent more on
shareholder payouts than on new oil projects, a sign of the
industry's desire to regain investor favor.
The energy sector accounted for just 4.4% of the overall
weighting of the S&P 500 Index of .SPX top U.S. publicly
traded companies as of Jan. 30, according to S&PGlobal, down
from nearly three times that a decade ago.
HIGH PRICE FOR LOW-COST OIL
Exxon, Chevron and Occidental Petroleum OXY.N recently
struck deals worth a combined $125 billion to acquire companies
that will help them pump oil for between $25 and $30 per barrel.
In Europe, Shell SHEL.L and Equinor EQNR.OL are pursuing
projects with $25-30 per barrel breakevens, while France’s
TotalEnergies TTEF.PA aims to get its production costs under
$25.
Those low costs are about half the break-even level for oil
projects a decade ago, and are about 40% of today's Brent global
oil benchmark LCOc1 . But they are a bet that improved
productivity of wells will continue.
"You get efficiency gains in every downturn cycle in
activity," said Peter McNally, global head of sector analysts at
Third Bridge, an energy research firm. "Rig count would still
need to go up by two-thirds before you get any real oilfield
inflation."
The cost imperative has led companies to conduct wholesale
restructurings of their portfolios and to concentrate operations
in fewer areas. They have also shed jobs and outsourced
operations to lower-cost countries.
Out is some high-cost, legacy production in Africa, Canada
and regions of the United States. Shell and Exxon last year sold
century-old California production and, together with
TotalEnergies, are seeking to exit or scale back their presence
in Nigeria. Chevron has left Indonesia and BP BP.L sold assets
in Canada, Alaska and the North Sea.
New production tends to be highly prolific deepwater fields,
where platforms turn into cash machines once paid off, or shale,
where a collection of small and easy-to-tap wells allows for
adjusting volumes depending on energy prices.
"It's good business" that allows for higher profit and
consistent shareholder distributions during the inevitable
industry downturns of the energy transition, Exxon Chief
Financial Officer Kathryn Mikells told Reuters.
Oil companies need high-return projects in order to pay
investors hefty shareholder returns which totaled $111 billion
last year. Those payouts took up more than half of the
companies' cash flow.
"We haven't cut dividends since the Great Depression,"
Chevron CFO Pierre Breber told Reuters, explaining why it has
focused on balancing shareholder returns with investments in
low-cost oil, biofuels and hydrogen.
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Occidental Petroleum to expand Permian ops with $12 billion deal
for CrownRock https://www.reuters.com/markets/deals/occidental-petroleum-buy-crownrock-12-bln-deal-2023-12-11/
Exxon secures lead in top US oilfield with $60 billion buy of
shale rival Pioneer https://www.reuters.com/markets/deals/exxon-talks-pay-over-250-per-share-pioneer-bloomberg-news-2023-10-11/
Chevron to buy Hess Corp for $53 billion in all-stock deal https://www.reuters.com/markets/deals/chevron-buy-hess-corp-53-bln-stock-2023-10-23/
Many happy returns https://reut.rs/3SrQkP0
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(Reporting by Sabrina Valle in Houston
Editing by Matthew Lewis)
((sabrina.valle@tr.com; Twitter: @sabrinavalle;))