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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Goldman Sachs: Oil Majors See Upside At $50 Oil

Although oil prices are now half what they used to be three years ago, Big Oil is better positioned now than it was when oil prices were sky high, Michele Della Vigna, co-head of European equity research at Goldman Sachs, told CNBC in an interview on Monday.

In the dizzy spending days between 2010 and 2014, when oil prices were above US$100, those high prices were actually “dreadful time” for the international oil majors, because everyone was eating the lunch, and Big Oil’s competitive positioning was destroyed, according to Della Vigna. Before the oil price crash of 2014, governments were raising taxes, services companies were raising costs, and national oil companies were bidding for assets.

In today’s tighter price environment, Big Oil is in a renewed competitive position because there is competition for new capital investments, which means lower production taxes, much lower production costs, and easy access to resources. All this brings the best combination of free cash flow and growth since the 1990s, Goldman’s manager said.

Cost cuts brought the rig count down and lowered costs for offshore vessels. It also increased efficiency, simplification, and standardization, Della Vigna noted.

The impact of the Deepwater Horizon spill prompted the sector to over-engineer, overcomplicate, and “put way too much redundancy on every production system.” Now all of this is unwinding and Goldman Sachs thinks that the costs to develop a new offshore field in 2018-2019 will be less than half of what it was only 4-5 years ago, according to Della Vigna. Related: Can Mexico Capitalize On This Golden Oil Opportunity?

A month ago, Goldman Sachs said that international oil companies were currently generating more cash at around-US$50 oil price than they did when the price of oil exceeded US$100 in early 2014.

“Simplification, standardization and deflation are repositioning the oil industry for better profitability and cash generation in the current environment than in 2013-14 when the oil price was above $100 a barrel,” Goldman said in a note in early August.

A couple of weeks ago, two analysts told CNBC that now could be a good time to invest in oil majors’ shares.  

By Tsvetana Paraskova for Oilprice.com

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  • Eulenspiegel on September 04 2017 said:
    ... and slashing the budget for exploring to near 0. There are almost no new discoveries, so there are the known projects, and then it will get thin for the big oil without own fields.

    Decline is never sleeping, so these new projects are needed to maintain level - US LTO can't sustain the whole world. These reserves are big, but not that big. Without russian and gulf oil we have "Mad Max", especially with these low exploring budgets.

    And I don't see these electric cars in the next 10 years reaching any relevant level.
  • Brandon on September 04 2017 said:
    Good article: this is exactly where we are at the moment and actually we don't even need that much shale anymore. Offshore drilling has become more effective than shale and more environmentally sustainable as well, no matter what Greenpeace idealists have to say.
  • Citizen oIl on September 05 2017 said:
    Investors have been told to jump in to energy numerous times in the last 3 years . Each time you did that some short seller promptly extracted your funds and put it into their pockets. This has made them like toxic radiation. They may be cheap now but nobody wants to touch them with a ten foot pole. Short sellers and algos have had the easiest time shorting anything energy related , with virtually no resistance. As long as theres a perception of overproduction this trend will not change. Goldman talks out both sides of their mouth, so beware.

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