Oil majors look to reverse stalled growth as prices rise, costs fall

European oil majors are expected to focus on offshore projects while Exxon and Shell will invest in shale production. BP photo.

Oil majors plan strong production growth until at least 2021

Even when the price of crude was over $100 per barrel, oil majors, including Shell, Exxon, Chevron and BP were struggling to deal with poor capital discipline and massive project delays.

Since 2014 when oil prices began to drop, the world’s largest oil companies began drastically cutting costs and looking for ways to make their projects more efficient in order to extract the same amount of crude at a lower cost.

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A Reuters analyst who pored over current investor presentations and corporate plans says armed more streamlined oil majors are planning strong production growth until at least 2021.

Even at $50 per barrel oil, Shell, Exxon, Chevron, BP, Total SA, Statoil and Eni are planning to grow output by a combined 15 per cent in the upcoming five years. The increase will mean the companies will add nearly 3 million barrels per day to their combined output in the next five years.

Reuters reported Bob Dudley, BP’s chief said “This environment requires discipline on costs and strong operating performance. It will reward businesses that can remain highly competitive at these prices,” at the London-based company’s strategy day last week.

Along with industry confidence, the mood of investors is shifting to growth.  Anish Kapdia, analyst at Tudor, Pickering, Holt&Co told Reuters “Oil prices are above $50 a barrel, companies are generating cash and are starting to talk about growth again, we are at that point of the cycle.”

Exxon and Chevron are both betting on shale production which offers rapid production results from relatively low investment. European oil majors are focussing more on large, offshore projects in the Gulf of Mexico and off the coast of Brazil.  While these types of projects are expensive, they also produce larger volumes of oil and gas.

Currently, Shell could become the largest publicly-traded oil producer by the end of the decade with a projected output of 4.23 million barrels of oil equivalent per day anticipated in 2021.  This could be revised down as Shell is working to sell over $20 billion of assets in the upcoming two years to pay for the $54 billion acquisition of BG Group.

So far, Shell has out-gained Exxon on profits in the last two quarters.

Santander analyst Jason Kenney says he believes France’s Total SA is well positioned to benefit from the recovery in oil prices.

Kenney told Reuters “The company (Total) is benefiting from a period of ‘already invested-in’ growth delivery when others are debating about reinvestment for long term growth.”

He says Total SA leads the group of oil majors with a return on average capital employed, a ratio of profitability versus investments, of 10.2, with Exxon second at 7.3.