• 5 minutes Iran Says It Arrested 17 CIA Spies, Some Sentenced To Death
  • 9 minutes Will We Ever See 100$+ OIL?
  • 13 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 36 mins Iran Loses $130,000,000 Oil Revenue Every Day They Continue Their Games . . . .Opportunity Lost . . . Will Never Get It Back. . . . . LOL .
  • 1 hour Oil Giant Saudi Arabia Is Set to Start First Wind-Power Plant
  • 1 hour How is E&P of Marginal Oil on the UKCS Similar to the Shale Oil Operations in the US?
  • 4 hours Berkeley becomes first U.S. city to ban natural gas in new homes
  • 3 hours So You Think We’re Reducing Fossil Fuel? — Think Again
  • 4 hours Shale Oil will it self destruct?
  • 7 hours Renewables provided only about 4% of total global energy needs in 2018
  • 11 hours First limpet mines . . . . now fly a drone at low altitude directly at U.S. Navy ship. Think Iran wanted it taken out ? Maybe ? YES
  • 6 hours EIA Reports Are Fraudulent : EIA Is Conspiring With Trump To Keep Oil Prices Low
  • 11 hours N.Y. Governor Signs Climate Bill
  • 1 day U.S. Administration Moves To End Asylum Protections For Central Americans
  • 10 hours Today in Energy
  • 7 hours Which is a better domain name for OAPEC?
Alt Text

Libya’s Oil Revenue Takes A Beating

Libya’s oil revenue fell significantly…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Oil Majors Optimistic Despite Price Plunge

The earnings season for the oil majors is over. Judging from their results, so is the three-year downturn that has transformed the industry after companies slashed spending and jobs and downsized growth plans.

The supermajors — who reported Q4 and 2017 figures in the past week — are now making nearly as much profits as they did in Q3 2014, when oil prices were just above $100 a barrel.

Higher oil prices in Q4 2017 helped the largest oil companies to double and triple profits, end the scrip dividend programs, and some of them — raise dividends and signal resumption of share buybacks to finally reward shareholders (even more).

The price of Brent plunged by more than $5 in the past week amid a selloff in global markets and a surge in U.S. oil production that rekindled concerns that the oversupply will persist despite some investment banks predicting that the oil market is likely already balanced.

Still, Brent topped $60 a barrel in October 2017 and has not fallen back below that threshold since then, helping the oil supermajors to book much stronger Q4 profits compared to year-ago levels.

While the U.S. supermajors ExxonMobil and Chevron disappointed with earnings misses, Europe’s Big Oil fared better, with BP saying it wrapped up its “strongest year in recent history”, Shell toppling Exxon as the largest cashflow generator in the industry, and Statoil and Total planning to raise dividends.

Cash flows also increased with higher oil prices, signaling that oil majors are now largely capable of covering their investments and dividends without having to pile up more debt loads.

Now that they finally generate more cash — for the first time in three years — oil majors may face other, not as gloomy as before, dilemmas: how to spend that cash.

According to Andy Critchlow, head of energy news EMEA at S&P Global Platts, oil majors now have three obvious options—to boost near-term shareholder returns by higher and/or all-cash dividends and share buybacks; ditch discipline and study a risky acquisition of a rival; or invest more in new upstream projects to secure longer-term growth and shareholder returns.

“Despite lingering concerns over the sustainability of recovering prices, the third course of action could be the best option for both energy markets and shareholders in the long term,” Critchlow argues, citing BP as an example. Shareholders will eventually demand more growth to see greater returns, so it would make sense for the UK supermajor to re-invest more cash into new large-scale projects, according to Critchlow. Related: LNG: Glut Today, Shortage Tomorrow

This year, BP, for example, is set to start up five major upstream projects in which it is a shareholder, after it launched seven others in 2017.

Still, Big Oil’s top executives are level-headed as far as spending in the near term is concerned, and are assuming quite conservative oil price scenarios for their planning this year, in stark contrast with the big investment banks that significantly lifted their oil price forecasts just days before the financial and energy market carnage this week.

While Goldman Sachs and JPMorgan see oil prices reaching the high $70s and even topping $80 as early as in mid-2018, BP’s CEO Bob Dudley told CNBC “We’re not planning on $70 a barrel. We’re going to plan our year on $55 to $60, roughly, and if is higher we’ll more than deliver on our promises.”

This week, Statoil proposed lifting dividends, but it doesn’t expect oil prices to be above $70.

Total now plans a 10-percent dividend increase and up to $5 billion share buybacks over the next three years, but CEO Patrick Pouyanné said that the oil market is not balanced yet. Total expects oil prices at $50-$60 a barrel this year, but he manages the company as if the price of oil were at $50, Pouyanné said this week, signaling that rigid spending discipline and conservative assumptions still dominate plans. Related: Venezuela Is Moving From Crisis To Collapse

It looks like Big Oil is now focused on the first of the three options that S&P Global Platts’ Critchlow outlined — rewarding shareholders with all-cash dividends, in some cases higher dividends, and share buybacks to offset the dilution from the scrip dividend plans under which investors could choose to be paid in shares instead of in cash.

In terms of spending on new upstream projects, there are signs that the slump will level off this year. Oil majors will continue “to cherry-pick opportunities, building on the great progress already made in repositioning portfolios for lower prices,” Wood Mackenzie said in its 2018 upstream outlook.

In order to win investors again after dismal stock market performance over the past year, the oil industry needs a pipeline of new projects capable of successfully delivering at oil prices at $50; free cash flow that can grow at $50 oil; and companies start building “compelling cases for long-term investment,” according to WoodMac.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play