BAKU, Azerbaijan, May 11. European majors are likely to maintain low leverage to protect their financial profiles, Trend reports via Fitch Ratings.
“European oil majors have significantly reduced leverage in recent years. This started in 2015, after oil prices collapsed and amid the “lower-prices-for-longer” mindset. Even though oil and natural gas prices have significantly increased since then, European majors are likely to maintain low leverage to protect their financial profiles against market price volatility, and maintain their strategic flexibility. Our projections show that the European oil majors will maintain fairly low leverage over the forecast horizon as long as falling upstream production and EBITDA is balanced by growth in other segments,” the latest report released by Fitch says.
The report reveals that investments in hydrocarbon exploration and development by the European majors have drastically declined since oil prices collapsed in 2015-2016.
“BP, Shell and TotalEnergies almost halved their cumulative upstream budgets in 2017-2019. However, this decline was largely driven by the industry’s cost deflation and improved efficiencies. In 2022, as the oil majors proceeded with their decarbonisation strategies, exploration and development costs reduced further, on average by 27% compared to 2017-2019,” note Fitch analysts.
Reportedly, this does not necessarily mean that oil majors cannotincrease their hydrocarbon investments.
“BP has announced it will now aim to increase its cumulative 2023-2030 capex budget by USD16 billion, to be equally split between green and upstream investments. Eni is planning to raise its upstream capex to EUR6 billion-6.5 billion in 2023-2026 (previous target: EUR4.5 billion in 2022-2025). The upstream portfolios of the European oil majors are fairly cost competitive. BP assesses an average break-even oil price for its portfolio at USD40/barrel, while TotalEnergies’ average break[1]even price is even lower at USD30/barrel. The European oil majors indicate that they also use fairly low prices for future investment projects. For example, BP uses USD60/barrel until 2030, while TotalEnergies uses USD50/barrel. However, investment criteria could be relaxed if high oil and gas prices persist.”
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