Oil majors to face more widespread delays to final investment decisions

Oil majors to face more widespread delays to final investment decisions

BAKU, Azerbaijan, March 26

By Leman Zeynalova – Trend:

Oil majors will face more widespread delays to final investment decisions, Trend reports citing Fitch Solutions Country Risk and Industry Research (a unit of Fitch Group).

“Brent crude has plummeted by more than 60 percent through the year-to-date. The dual impact of Covid-19 and the collapse of OPEC+ market management has seen oil drop to multi-year lows with prices dipping below $25/bbl through late March. The recent fallout is heavily bearish for prices and paves the way for substantial ‘cut’ barrels to re-enter the market from April placing further downside pressure on spot prices,” the company said in its report.

Estimated calculations suggest such barrels could amount to up to 3.5-4.0mn b/d, equivalent to more than three years of global oil demand growth, said the company.

“The oil price collapse will hit producers hard. For the world’s largest oil and gas companies the recent price dynamics have prompted a swathe of significant capex cuts as well as delays to planned share buy-back programs. Prior to the remarkable drop in price through Q1 2020, our analysis of capital guidance from key oil and gas majors indicated a modest growth in capex year-on-year with total planned spending up 6.5 percent to USD116bn. However, latest guidance has changed this picture dramatically, based on company communication and best estimates, we now see a drop of 18.6 percent in capital expenditure for BP, Shell, Exxon, Chevron and Total through 2020.”

As well as headline capex, share buyback programs at several companies have been suspended, reads the report.

“Both Shell and Total had planned massive share buyback programs through 2020; Total in the order of USD1.5bn and Shell having aimed to buy back USD25bn over three years. Both these programs have now been suspended.”

The report shows that prior to the oil price rout, the majority of majors were undergoing substantial divestment cycles, attempting to re-align portfolios to lower oil prices by focusing on lower breakeven projects and faster payback.

“For several, this had included utilizing existing infrastructure and focusing on US shale expansions. Moving forward, with prices expected to remain significantly lower through the year, we expect a broad impact on the margins of new projects and with decreased exploration, fewer high margin projects will be available for investment in the future. Subsequently we expect more widespread delays to final investment decisions across all of the majors, with capital investment and operational expenditure focusing on existing assets and only the highest margin projects moving forward.”

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Follow the author on Twitter: @Lyaman_Zeyn

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