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Page added on April 28, 2018
Big Oil Firms Hold Back on Drilling
The world’s biggest oil companies are awash in cash, thanks to rising crude prices. But few, if any, are going on spending sprees, even as the prospect of a global oil shortage looms.
Western energy giants including Exxon Mobil Corp. XOM -3.80% , Chevron Corp. CVX 1.93% and Royal Dutch Shell RDS.B -0.39% PLC just posted their best first-quarter profits in years, with most besting a time when crude sold for more than $100 a barrel.
Combined, profits at Exxon, Chevron, Shell and Total were $16.8 billion, the highest since 2014. Exxon’s net income rose 16% to $4.7 billion, but production fell 6% to below 4 million barrels a day. Chevron’s profits rose 36% to $3.6 billion, while output rose 6.5% to the equivalent of about 2.9 million barrels a day.
Yet despite a 50% surge in prices since last year, drilling budgets at the largest oil-and-gas companies are up only about 7%, according to consultancy Wood Mackenzie.
Large publicly traded oil companies are moving carefully because they are under pressure from investors after spending heavily over the past decade when prices were higher, only to generate underwhelming returns.
“The newfound religion and confidence in the sector is, to say the least, fragile,” said Shell Chief Executive Ben van Beurden. “We’ll need to show a little longer that we actually mean what we say in terms of capital discipline.”
By contrast, smaller U.S. shale producers—especially those backed by private equity—have seized on the opportunity to ramp up drilling and gain market share.
Two years ago, the top 30 U.S. companies accounted for almost 64% of production. That percentage has fallen to 60% this year, according to consultancy Rystad Energy.
“Big companies are still cutting coupons to show that they can live within their means,” said Adam Flikerski, managing partner at BlackGold Capital Management LP, an asset manager that specializes in oil and gas lending. “Like technology companies, the smaller players are still rewarded for growth.”
The wary response from the world’s biggest producers comes as a global oil glut that has hung over the industry for the past four years finally appears to be withering away. Without stepped-up spending on new oil production, the International Energy Agency warns, the world could flip from abundance to supply crunch by 2020.
A lack of investment is “potentially storing up trouble for the future,” the Paris-based agency said last month.
Still, many investors in publicly traded oil and gas producers are pressing executives not to sow the seeds of another price crash with excessive growth. Their apathy about oil’s rally has shown.
While the price of Brent crude, the international oil benchmark, is up around 11% this year, a leading barometer of energy stocks, the MSCI World Energy Index, is only up around 4%. A number of companies have performed even worse. Exxon is down 3.9%.
The pace of share buybacks has been a key factor for performance so far. ConocoPhillips shares rose 3% Thursday after the company disclosed it had repurchased about $500 million in stock, as it reported that quarterly profits jumped 52% to $888 million.
Exxon fell 3.4% Friday after announcing that it has not yet reinstated its longstanding program for buying back shares. Although the company posted its highest cash flow since 2014, it still fell short of analyst expectations for the second straight quarter. Profits rose 16% to $4.65 billion compared with the first three months of last year, but production fell after an earthquake in Papua New Guinea knocked out natural gas production in the country. Revenue rose 16% to $68 billion.
‘Big companies are still cutting coupons to show that they can live within their means.’
Chevron’s stock rose 1.8% Friday after the company’s profits beat expectations, and it reported revenue surged 13% to about $38 billion.
Shell’s U.K. shares on Thursday fell 0.7% after the company missed cash flow expectations and failed to give more clarity on when it would begin buying back $25 billion in stock, as it reported quarterly profits rose by two-thirds to nearly $6 billion.
Chevron’s stock rose 1.8% Friday after the company said first-quarter profits were $3.6 billion, up 36% from a year ago.
France’s Total SA announced a 3.2% dividend increase Thursday. Chief Executive Patrick Pouyanne said the company will use the excess cash it rakes in with oil above $70 a barrel to reward shareholders with higher dividends and share buybacks.
“Some of you may be worried about the financial discipline, but I can tell you we keep in mind the discipline,” Mr. Pouyanne told analysts.
Sanford C. Bernstein expects the world’s biggest oil companies to generate record amounts of cash in excess of new investments this year.
The spending constraints aren’t so restrictive that the biggest companies are avoiding new developments completely. BP PLC, which reports earnings next week, sanctioned several new projects this month, including the second project in a $6 billion natural gas development in India.
Earlier this week, Shell announced plans for a new deep water project in the Gulf of Mexico. Exxon may take a final investment decision later this year on a new facility to manufacture polypropylene, a widely used form of plastic.
One reason for caution among larger companies is that some analysts, investors and executives still lack faith that crude prices will remain elevated through the end of the year.
“There’s potential weakness on the horizon in oil prices,” said Tom Ellacott, senior vice president for corporate research at Wood Mackenzie. “It’s still quite an uncertain environment.”
Smaller U.S. producers are exercising less caution, as many of them still have business models akin to startups’. They must invest in new wells to prove the viability of new prospects.
Those companies are a major reason why forecasters say U.S. oil output may reach 11 million barrels a day by the end of the year, surpassing the output of Saudi Arabia.
In February, companies that aren’t among the top U.S. crude producers made up almost half the permits approved for new drilling, according to data and analytics firm DrillingInfo. In the past six months, those operators accounted for about 42% of permits. Permits are generally a useful barometer for future drilling activity.
Many such companies will be affected by shortages in labor and trucking, as well as pipeline bottlenecks in the Permian basin in West Texas and New Mexico, the heart of U.S. drilling activity. Those challenges could curtail production by about 400,000 barrels a day, but output will continue surging as many companies have secured the supplies and contracts needed to meet their goals, said Artem Abramov, vice president of analysis at analytics firm Rystad.
“We’ve got a completely new generation of small, private players with very ambitious growth plans in the Permian basin,” he said. “Those plans will continue.”
24 Comments on "Big Oil Firms Hold Back on Drilling"
Shortend on Sat, 28th Apr 2018 9:04 am
I have a plan, Mein Fuhuer! Let’s have the government pay for the drilling, and the Oil Companies reap the profits! That works for the Bankers and Wall Street.
Duncan Idaho on Sat, 28th Apr 2018 9:13 am
“A lack of investment is “potentially storing up trouble for the future,” the Paris-based agency said last month.”
End of this year, first of 2019 should be interesting.
But I have been wrong before.
Cloggie on Sat, 28th Apr 2018 9:24 am
Excellent, hold back drilling, drive up the oil price.
Good for the transition and Russian state income.
rockman on Sat, 28th Apr 2018 9:24 am
Duncan – Exactly. For instance: “But few, if any, are going on spending sprees, even as the prospect of a global oil shortage looms.” An example of someone without a clue of the budgeting process of major companies. Or does understand and needs anything to hype so they can justify writing an article.
And the obvious: an oil/NG company makes investment decisions based upon the economic evaluations of projects and not based on cash on hand.
MASTERMIND on Sat, 28th Apr 2018 9:26 am
Saudi Arabia Peak Oil
https://imgur.com/a/1ZIvRnR
MASTERMIND on Sat, 28th Apr 2018 9:30 am
Ronda Rousey thinks doomsday is coming — and she’s ready for it
https://www.usatoday.com/story/sports/2018/04/27/wwe-ronda-rousey-becomes-doomsday-prepper/557469002/
She is good at collapsing!
https://media.giphy.com/media/qFo1JIyGJT06Q/giphy.gif
MASTERMIND on Sat, 28th Apr 2018 10:05 am
Brexit Failure Looks More Likely Every Day
https://www.bloomberg.com/view/articles/2018-04-27/brexit-failure-looks-more-likely-every-day
fmr-paultard on Sat, 28th Apr 2018 10:41 am
^mm^ yes brexit is a bad idea because it violates supertard’s frederic bastiat’s assertion that men are meant to plunder. being part of the eu is a good way to plunder.
brexit can work if people hunker down and have strong industrial strenght defense plus agriculture (like lazy man farming and it’s modern superior replacemnet hydroponic)…but in area of decling fossile fuel this is not possible.
having agriculture and industry is a conflict of supertard george orwell assertion that one can not go back to agriculture and live simple lives.
yes we need to promote “brexit” for putin, brexit for comrade xi (who benefited from anti brexit by acquiring resources elsewhere and trade elsewhere by the way).
fmr-paultard on Sat, 28th Apr 2018 10:45 am
brexit to me means the english people love themselves too much. princess kate can no longer visit places because she costs too much. she went to canada recently and the town didn’t make any money!
yes the royal attract people via tourism but like any biz there’s a diminishing margin of return.
to restart the golden age of industry we need to take siberia and all islamic land. but first we need to encourage more aggression from both parties. remember the crusade wasn’t all about islam. more like 10%
fmr-paultard on Sat, 28th Apr 2018 10:49 am
20 years ago china embarked on a gigantic effort to bring up a generation of supertards. this was on 60 minutes!
the traditional way we bring up our supertards is putting them on accelerated tracts (boat, davy, rock alice). we say they’re gifted and we load them up with extra coursework and college prep. we should intensify this effort.
we need a new generation of supertards. i’m just a tard. we need to get ready for rebuilt after we take resources. our supertards will build it if we have resource.s
fmr-paultard on Sat, 28th Apr 2018 10:55 am
what’s so bad about empire? as a former paultard, sueprtard president paul kept harping that empire is destroying our economy. but president paul doesn’t know anything about economic. he’s a pure political machine.
do you hear how eurotard said we want a “reconquista” of america? hahaha…all hail eurotard who paid jimmy wales some shekles and proclaim they own everything…everyone does that..they own everything, they’re superior to everyone else. everyone does.
https://en.wikipedia.org/wiki/Dutch_people
anyways, the idea is eurotard want empire. there will always be empire…we should we give up our empire for theirs?
our empire may decline due to information warfare and kinetic but we’re in an area of AI, genetic, computing…we should build a new empire based on that.
Cloggie on Sat, 28th Apr 2018 11:03 am
Brexit Failure Looks More Likely Every Day
My fear is that Brexit will be sabotaged at the last moment from within Britain. Best compromise would be for Britain to follow the Norwegian template: paying membership to the European market but no voice in the decision-making process, the whole purpose being to open up to Russia and get rid of the US watchdog.
Next concentrate on the US, where the resistance against its own demise is relatively strongest of all the “Five Eyes”. Here is the greatest potential for secession movements.
http://www.dailymail.co.uk/news/article-5664521/Sacre-bleu-Kate-William-chosen-Prince-Louis-used-18-French-Kings.html
‘Now we’re just trolling the French!’ Social media explodes after Kate and William choose the name of 18 French Kings as well as a Jungle Book orangutan and an One Direction star
to restart the golden age of industry we need to take siberia and all islamic land.
Excellent idea. Why don’t you start practicing on Afghanistan.
Oh wait…
#15YearsAndCounting
MASTERMIND on Sat, 28th Apr 2018 11:32 am
CLogg
Is everything is this world some conspiracy? If brexit doesn’t work out its been secretly sabotaged by the globalist..You are total tin foil hat nut job. And you are dumb as dirt for thinking our world issues can be solved politically.
Cloggie on Sat, 28th Apr 2018 11:59 am
Nothing to do with “conspiracy”, you loon. Brexit forces in Britain were 52/48 and remain in the balance. The problem is that the UK has no plan B. It is just the British form of nostalgia, like the US MAGA baloney. Would could plan B look like? Empire? LOL. The UK can perhaps apply for membership of the Indian Empire:
https://www.youtube.com/watch?v=NTOVbGRY9c8
Or perhaps concentrate on the Commonwealth. Dunno. Countries have meanwhile moved on.
I know what British right-wingers are going to say, EU Marxist, blabla… I maintain that the EU, thanks to the Eastern-Europeans, is on average LESS political correct as the British government. So if a white Brit wants to protect British identity, he is probably better off in the EU as outside. But the main prize is Russia. If we can draw them into Europe, they could tilt the balance towards a form of populism that would explicitly protect European identity.. From there we could act as a magnet towards parts of North-America. Once they come into our direction, Britain and offshoots will follow automatically.
Davy on Sat, 28th Apr 2018 12:15 pm
“I maintain that the EU, thanks to the Eastern-Europeans…But the main prize is Russia. If we can draw them into Europe, they could tilt the balance towards a form of populism that would explicitly protect European identity.. “
You are a treasure trove of contradictions. East Europeans do not care for Russians but you think all this is going to gel together. Russians care about Russian identity first then European identity and preferable under their boot.
Boat on Sat, 28th Apr 2018 7:11 pm
The Celtic areas along with the Irish know what it is to be thought of lower than the Black not that long ago. The EU self implode button is to war for control with no respect for anybody. Then it’s like oh shyt, our war machine is to small….time to die….try later.
twocats on Sat, 28th Apr 2018 10:40 pm
compare this article with the chron article and its like houston is smoking some good chronic. WSJ has to relay actual useful information to its business class or the business class won’t read it. its like economics vs business management. each is a degree you can major in from any school in the country – one is propaganda the other is reality.
MASTERMIND on Sat, 28th Apr 2018 11:32 pm
ICE wrongfully detained nearly 1,500 Americans: report
https://nypost.com/2018/04/27/ice-wrongfully-detained-nearly-1500-americans-report/
I wonder if these ICE raids are just to lay the ground work, for eventually detaining American citizens, for whatever reasons they want.
Cloggie on Sun, 29th Apr 2018 12:30 am
“You are a treasure trove of contradictions. East Europeans do not care for Russians but you think all this is going to gel together. Russians care about Russian identity first then European identity and preferable under their boot.”
The US and EU have gdp in the order of $20T, Russia $4T. The idea of Europe under Russian boot is ridiculous, instead we are under desastrous multicultural dominance of the US, well until November 2016 that was.
In fact Putin is not unpopular in Easter Europe, leaders from Hungary, Slovakia, Czech Republic and Bulgaria have more faith in Putin than in the Soros bunch.
And on a popular level the US (before Trump) and EU promoted multicultural model of society is vehemently resisted in Eastern Europe.
But in the end of the day it matters only what French, German and Russian leaders decide, the rest in Europe will follow. Putin is clearly on the path of a reconciliation with Germany…
https://documents1940.wordpress.com/2018/03/20/vladimir-putin-about-german-russian-reconciliation/
…and European Confederation…
https://documents1940.wordpress.com/2017/12/03/paris-berlin-moscow/
…the new overlord of European America, if the latter will be so lucky and be able to escape from ZOG.
Cloggie on Sun, 29th Apr 2018 2:10 am
This is Florida:
https://gab.ai/IdentityEvropa/posts/24713977
#OperationEnduringEuropeanness
You think that Davy is the only one yearning for Europe? Think again.
Davy on Sun, 29th Apr 2018 4:54 am
“The US and EU have gdp in the order of $20T, Russia $4T. The idea of Europe under Russian boot is ridiculous”
You have a paper army neder. Russians have a real Army and one voice with Europe being many nations that would never find a common resolve without the Americans. Your people will likely turn on themselves if the Americans weren’t there. If we leave the Russians will be their to instill order among the spoil brats.
“In fact Putin is not unpopular in Easter Europe, leaders from Hungary, Slovakia, Czech Republic and Bulgaria have more faith in Putin than in the Soros bunch.”
That may be true but the like the Russians second worst.
“And on a popular level the US (before Trump) and EU promoted multicultural model of society is vehemently resisted in Eastern Europe.”
BS, eastern Europeans like Americans.
“But in the end of the day it matters only what French, German and Russian leaders decide, the rest in Europe will follow.”
Sure neder, that is another fantasy part of your puzzle and the reason you live in the twilight zone.
…and European Confederation…
Daily nonsense
Davy on Sun, 29th Apr 2018 4:58 am
“You think that Davy is the only one yearning for Europe? Think again.”
AH, LOL, find me significant examples with critical mass then get back to me…On the yearning from Europe. We have plenty of people who see the need to end the de facto unrestricted immigration. You really are stuck on yourself and goofy.
Sys1 on Sun, 29th Apr 2018 6:27 am
For decades, we heard about oil alternative.
I think they finally understood that they don’t need to drill as actually, there are no alternative to oil.
Even if oil prices skyrocket, people will have to buy it. At least an army! Bingo!
Simon on Sun, 29th Apr 2018 8:10 am
https://www.youtube.com/watch?v=-a6HNXtdvVQ
brexit explained