Sign in
Why are you using WhatsApp?
We have the only messenger dedicated to the industry right here!
Newsfeed, Jobs, Chat, Vendor Network, Crew Creator and Location Services
Subscribe to our mailing list to receive trending oil and gas news!
LONDON (Reuters) – Big Oil is today in a spending sweet spot as years of cost cuts and rising oil prices converge but investments will need to rise after 2020 to boost output, BlackRock, the world’s largest asset manager, said on Tuesday.
Oil and gas giants such as Royal Dutch Shell (RDSa.AS), Chevron (CVX.N) and BP (BP.L) are generating as much cash at today’s oil prices of around $70 a barrel as they did in 2014, before crude spiraled down from over $100 a barrel to lows of below $30 a barrel.
As they emerge from the deepest downturn in decades, boards have vowed to remain thrifty and stick to lower spending targets in order to return value to shareholders after years of pain.
Alastair Bishop, director and portfolio manager in BlackRock’s natural resources team, which has major holdings in the world’s five largest oil and gas companies, said he did not expect capital expenditure, or capex, to rise in the near term.
“It is a sweet spot for IOCs (international oil companies) where they have relatively low cost inflation, a reasonable oil price and at these levels they can generate significant cashflow to go toward paying down debt (and share) buybacks,†Bishop told Reuters in an interview.
BlackRock is the largest investor in Shell and BP and among the top five in Total (TOTF.PA), Exxon (XOM.N) and Chevron, Eikon Refinitiv data shows.
Unlike earlier in the decade, when oil companies raced to grow production to meet soaring demand in China, boards are today focused on returns from investments, Bishop said.
“I am not sure investors are wanting large IOCs to be chasing growth. There is much greater interest in generating returns and free cash flow.â€
But given the nature of the business where fields naturally decline as they age and take years to develop, investments will have to grow after 2020 to avoid a dip in production.
“Would I be surprised if beyond 2020 capex budgets start to move higher? No, I wouldn’t. There will be a little cost inflation and they will need to start thinking about their production profile into the 2020s,†Bishop said.
The appetite for huge multi-billion-dollar projects such as deepwater oil fields and large gas processing facilities that became the trademark for Big Oil has however weakened, Bishop said.
Instead, companies should opt for smaller-scale and phased projects where spending is better controlled such as shale oil and offshore field expansions as well as non-oil and gas projects such as chemical plants and power generation, he added.
“There seems to be less appetite for just ploughing money straight back into the ground,†according to Bishop.
“From our side, unless you have new opportunities right at the bottom of the cost curve we are not that desperate for you to drive volume growth in terms of oil.â€
BlackRock sees the transition away from fossil fuels to cleaner low-carbon energy happening faster than many oil companies expect, with oil demand peaking in the early 2030s, Bishop said, around a decade earlier than most other forecasts.
But what role oil majors will play in the transition remains unclear.
Europe’s energy giants have stepped up investments in low-carbon energies following the landmark U.N.-backed 2015 Paris Climate Agreement, in contrast with their U.S. rivals.
“Levels the Europeans are spending in that area look entirely reasonable to me,†Bishop said. “If they can prove the business model works then it would make sense for them to start allocating more.â€
Reporting by Ron Bousso; Editing by Adrian Croft
Photo used under the Creative Commons Attribution 2.0 Generic license. Author: Tony Webster
A new community just for oil and gas…
Download the app free right here!
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
Why are you using WhatsApp?
We have the only messenger dedicated to the industry right here!
Newsfeed, Jobs, Chat, Vendor Network, Crew Creator and Location Services
Subscribe to our mailing list to receive trending oil and gas news!
Comments (0)