Offshore staff
LONDON — Westwood Global Energy Group has analyzed the current thinking of the five supermajor oil companies on new energy investments.
Collectively, it calculates, their production fell by about 900 Mboe/d between 2013 and 2022, due mainly to departures from Russia and divestments of higher cost production.
However, their operating cashflow rose from $171 billion in 2013 to $283 billion in 2022—an increase from $30 to $53 for each bbl produced, at an oil price 7% lower.
According to Westwood’s Keith Myers, the transformation is due to lower operating costs (following sales of higher cost assets), improved operational uptime and efficiency, higher gas prices, lower supply chain costs and downsized organizations.
Last year the supermajors approved capital investments of $83 billion, $18 billion more than in 2021, but still below pre-COVID-19 pandemic levels and the $188 billion invested in 2013. Only 19 of the 29 cents in every dollar of operating cash inflow were reinvested in the upstream, Myers added.
Companies appear to be focused on delivering value over volume through 2030, in the form of low cost, lower emissions production with strong cash generation, and capital discipline on upstream projects to safeguard against downside price scenarios.
ExxonMobil is reportedly allocating 90% of its capex to projects that can achieve more than 10% returns at less than or equal to $35/bbl. TotalEnergies is targeting projects at about $30/bbl post-tax breakeven, or less than US$20/boe combined capex and opex.
bp had committed to cutting its oil and gas production by 2030, although it has recently raised its production target to 2 MMboe/d by 2030 from the previous 1.5 MMboe/d.
At the same time, the supermajors’ asset portfolios have shrunk with only modest exploration success in the last few years, Myers claimed, limiting to the upstream development options that meet these criteria.
Another factor is the spread of protests and legal challenges against some planned new projects.
While the Big 5 are increasing their outlay on energy transition-related projects, it remains relatively modest compared to conventional hydrocarbons, Myers said, which currently achieve a much better return on capital employed.
Despite the protestors, calls are growing for increased oil and gas production in the short term combined with greater investments in renewables energy to calm prices. But the combination of continued demand growth for oil and gas and lower investment has pushed prices higher, he argued.
“Oil companies can say very reasonably that they do not set oil and gas prices; the supermajors together account for only 8% of global oil and 10% of global gas production," Myers said. “Big oil is not going to open the capital investment taps – it is not in their interests to do so. Unless it can tame demand to bring prices down, society will need to decide what do about the excess upstream cash generation.”
02.17.2023
