Big international oil companies are currently generating more cash at around-US$50 oil price than they did when the price of oil exceeded US$100 in early 2014, Goldman Sachs reckons.
“Simplification, standardization and deflation are repositioning the oil industry for better profitability and cash generation in the current environment than in 2013-14 when the oil price was above $100 a barrel,” Goldman Sachs analysts said in a research note on Wednesday, as quoted by Bloomberg.
Cost cuts and refocusing strategies have allowed Big Oil to adapt to the lower-for-longer oil prices. At US$100 oil price, the majors were spending en masse on giant projects, but these mega projects are now coming online and are starting to produce oil, revenues, and cash, according to Goldman. At the same time, the big firms have slashed expenditure and costs since the price of oil started tumbling in the second half of 2014.
According to Goldman Sachs, Europe’s Big Oil generated in Q2 2017 cash capable of covering 91 percent of the companies’ combined spend on dividends and capital expenses. This goes to show that the major European companies are nearing the point when they can finance dividend payments with cash generated from the business, the investment bank said.
Big Oil reported as a whole good Q2 figures, showing that cost cuts have started to pay off. The major companies are shifting toward either gas or shale plays in a sign that they have learned to plan for US$50 oil and accepted that oil prices could be lower for a lot longer.
Shell is getting ready for ‘lower forever’ oil prices, its chief executive Ben van Beurden said last week.
“BP is continuing to plan for a lower oil price world,” chief executive Bob Dudley said on Tuesday, adding that “I’m not expecting big shifts in prices anytime soon and a price of $50 a barrel looks like the right number to plan on for the rest of the decade.”
By Tsvetana Paraskova for Oilprice.com
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