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(Bloomberg) — Investors still haven’t forgiven oil companies for being ill-prepared for a crude-price collapse four years ago. Perhaps more than half a trillion dollars will change their minds.
With oil above $80 a barrel as costs languish at an eight-year low, the industry is seeing green. In 2018 alone, it will rake in as much extra money as it did in the previous five years combined, according to consultant Rystad Energy AS. You could liquidate Facebook Inc. and it wouldn’t touch what oil companies will generate in free-flowing cash over the next three years.
They may need every dollar. So far nothing oil companies have done — from $25 billion buyback programs to better earnings than in the days of $115 oil — has gotten them out of the doghouse with investors. Share-prices increases have fallen well behind the surge in crude. while in the U.S., oil companies haven’t kept up with broader index gains at all.
“The comeback in free cash flows has only gradually started to be visible,†said Espen Erlingsen, a partner at Rystad, by email. Investors are probably “waiting to see how these oil companies will spend the extra money.â€
Free cash flow at international oil companies is expected to more than double this year, to a record $175 billion. Then it will rise again in 2019, to close to $200 billion, and stay around that level for at least two years after that, according to Rystad Energy.
The estimate comes with a big caveat. Oil prices can’t fall from today’s level of more than $80 a barrel, and companies can’t return to pre-crash spending heights.
There are reasons to doubt the sustainability of crude’s rally. Oil prices have surged in the past year, in part because a snap-back of U.S. sanctions on Iranian fuel exports is driving fears of supply shortages. BP Plc Chief Executive Bob Dudley said those concerns could subside by the end of the year and that prices “feel high.â€
Investors are also uncertain whether they can trust oil company executives to exercise restraint as crude keeps soaring. Firms committed to increasingly large projects from 2008, buoyed by a bullish crude market. By 2014, when prices collapsed, costs and investments for international oil companies rose to $560 billion, while free cash flow fell to less than $50 billion, not enough to cover dividend payments, Rystad data show.
While the same companies cleaned up their balance sheets and are now more profitable than before the crash, investor confidence in the sector hasn’t been fully restored. The S&P 500 Energy Index has gained about 9 percent this year, lagging behind U.S. crude’s 23 percent increase.
“The concern of some investors is that capital discipline isn’t really here to stay,†said Jason Gammel, an analyst at Jefferies LLC. “We’re not that far into the recovery yet.â€
Executives will have the chance to make their case this week at the Oil & Money conference in London, which kicks off Tuesday.
Investors have heard austerity pledges after previous down cycles in the oil price, only to abandon the idea when crude shot back up, said Gammel. The big cash flow figures would have to actually materialize, accompanied by sustained efforts to return extra money to shareholders, to win back trust.
To contact the reporter on this story: Kelly Gilblom in London at kgilblom@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Helen Robertson.
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Valaris Limited announced new contracts awarded subsequent to issuing the Company’s most recent fleet status report on February 21, 2023. Three-year contract with Petrobras for drillship VALARIS DS-8. The rig will be reactivated for this contract. The total contract value is approximately $500 million, including a $30 million mobilization fee. 100-day contract with a TotalEnergies affiliate for drillship VALARIS DS-12. The contract is expected to commence in second quarter 2023. 70-day contract with Beach Energy offshore New Zealand for heavy duty modern jackup VALARIS 107. The contract is expected to commence in third quarter 2023. The total contract value is approximately $26 million. President and Chief Executive Officer Anton Dibowitz said, “We are particularly pleased to have secured the award for preservation stacked drillship VALARIS DS-8, for a contract that is expected to generate a meaningful return over the firm contract term, and we remain focused on exercising our operational leverage in a disciplined manner. This most recent award represents the sixth contract awarded to one of our high-quality stacked floaters since mid-2021, and speaks volumes about our demonstrated track record of project execution when reactivating rigs.” Dibowitz added, “Following the reactivation of VALARIS DS-17 and DS-8, we will have ten floaters working across the golden triangle, including four drillships in Brazil, a market where we expect to see continued growth over the next several years.” Updated Guidance As a result of the contract awarded to VALARIS DS-8, which will require the rig to be reactivated from preservation stack, we are updating our first quarter 2023 and full-year 2023 guidance provided on our fourth quarter 2022 conference call on February 21, 2023. First Quarter 2023 Contract drilling expense is expected to increase by approximately $5 million to $385 million to $395 million. Adjusted EBITDA is expected to decrease by approximately $5 million to negative $5 million to breakeven. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $25 million to $30 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Full-Year 2023 Revenues are anticipated to be $1.8 billion to $1.9 billion, unchanged from the guidance provided on our fourth quarter 2022 conference call. Contract drilling expense is expected to increase by approximately $60 million to $1.49 billion to $1.59 billion. Adjusted EBITDA is expected to decrease by approximately $60 million to $180 million to $220 million. Adjusted EBITDAR, which adds back one-time reactivation expense, is expected to be $280 million to $320 million, unchanged from the guidance provided on our fourth quarter 2022 conference call. Capital expenditures are expected to increase by $60 million to $320 million to $360 million. Source: Valaris Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Seadrill Limited announced that the West Neptune has executed approximately six months of term extensions with LLOG Exploration Offshore, L.L.C in the US Gulf of Mexico. The extensions will commence in direct continuation of the existing term, and will keep the rig busy until Q3 2024, furthering Seadrill and LLOG’s long-term association. Total contract value for the extension is approximately $79 million. Source: Seadrill Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
Semisub rig owner Dolphin Drilling has inked a new contract with Peak Petroleum in Nigeria for its 1974-built Blackford Dolphin. The firm contract, which follows the letter of award in January, gives the Euronext Growth-listed owner of three rigs the potential to extend the unit’s backlog by a minimum of 120 days and up to 485 days. The deal adds to and will be a direct continuation of the previously announced 12-month contract with General Hydrocarbon Limited (GHL). Øystein Stray Spetalen-backed company said the effective dayrate associated with the minimum firm period of the contract is $325,000, including the mobilisation fee. “The final award of the contract for Blackford Dolphin shows the opportunities in Nigeria at a strong dayrate, in addition to building on the backlog for the rig. It also underlines the attractiveness of our assets, and we look forward to returning to revenue-generating operations in 2023,” noted Bjørnar Iversen, CEO of Dolphin Drilling. Source: Dolphin Join our mailing list here We are #1 on Google and Bing for the "Largest Mobile Energy Network" Come join our community! Download the Rig Lynx app here
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