By August 2, 2017 Read More →

Big oil companies see more profits at $50 oil than $100 oil – Goldman Sachs

Big oil

Shell’s Ben van Beurden says his company is preparing for “lower forever” prices. In the second quarter, Shell tripled their profits as the big oil company continued to cut costs and change its strategy to adapt to the new normal. Shell photo

Big Oil focused on cutting costs, changing strategies when crude prices tanked

With oil prices hovering around $50/barrel, big oil companies are currently generating more cash than they did back in 2014 when the price of crude was over $100/barrel, according to Goldman Sachs.

Accelerate Kootenays“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,” Bloomberg reported Goldman Sachs analysts said in a research note on Wednesday.

After crude prices dropped in 2014, big oil companies focused on cost cuts and changed their strategies to adapt to sluggish oil prices.

When oil was over $100/barrel, companies were spending on giant projects and now those projects are coming online and starting to produce oil, revenue and cash.  At the same time, major oil companies cut their costs.

Goldman Sachs says in the second quarter of this year, big oil companies in Europe generated enough cash to cover 91 per cent of the companies’ combined expenditures on dividends and capital expenses.  Major European oil companies are almost at the point where they can finance dividend payments with cash generated from the business.

Shifts in strategy mean big oil companies are moving towards gas or shale plays, and have accepted that oil prices could be lower for a longer period.

Last week, Shell’s CEO Ben van Beurden said his company is preparing for “lower forever” prices after his company tripled their profits in the second quarter.  He added Shell was “getting fit” to be profitable at $40/barrel oil.

BP’s chief executive Bob Dudley said “BP is continuing to plan for a lower oil price world.”  He added “I’m not expecting big shifts in prices anytime soon and a price of $50 a barrel looks like the right number to plan on for the rest of the decade.”

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