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The dark storm clouds that have been hanging over the oil industry during the crude-price slump have suddenly started raining cash.
After cutting billions of dollars of costs to survive the biggest downturn in decades, Big Oil is now riding a price rebound to generate enough cash to pay dividends and still have plenty left over. The big question is what they’re going to do with it.
Company bosses are at a crossroads. On the one hand, investors who stuck around during the price collapse want to see money returned through share buybacks. On the other, CEOs still have an eye on growth — either through investments, acquisitions, or both. On either path, they would still have to maintain hard-earned discipline on spending.
“Rolling back a year ago, the narrative was around the sustainability of dividends. Now it’s about shareholder returns in excess of those dividends,†said Ryan Kauppila, a Boston-based fund manager at Putnam Investments, which manages $172 billion. “The market is still very focused on capital discipline. That doesn’t mean don’t spend, it means spend it well.â€
Investors will be listening keenly as Big Oil’s second-quarter earnings roll in starting July 26, when Royal Dutch Shell Plc, Total SA, Equinor ASA and Repsol SA report. Exxon Mobil Corp., Chevron Corp. and Eni SpA announce the next day, and BP Plc on July 31.
These eight companies, and Galp Energia SGPS SA, will together have $8 billion of surplus cash in the second quarter even after stock repurchases, according to Royal Bank of Canada.
The hunt for growth has already started. BP has emerged as the front-runner to buy BHP Billiton Ltd.’s onshore oil and gas operations in the U.S., and is competing with Shell and Chevron, according to people familiar with the sale process. BP’s offer, said to value the assets at about $9 billion, would make it the company’s biggest deal in years.
Meanwhile, BP’s stock has dropped 2 percent this month while its European rival Shell’s B shares in London have gained 0.4 percent and Total is up 0.8 percent. One reason: BP investors are worried the company will overspend and the purchase will “inhibit BP’s ability to increase shareholder return in the near future,†said Jean-Pierre Dmirdjian, an analyst at Raymond James Financial Inc.
While blockbuster deals secure future reserves and production, shareholders have mixed feelings about big spending.
The industry has often been accused of losing control over costs when oil prices are high and profits are flowing. In the years of $100 a barrel crude, they spent billions drilling in the most remote and expensive-to-operate areas and built mega liquefied natural gas projects that took years to complete. Some of these LNG projects suffered cost blowouts and delays, and when they finally started up in the last couple of years, a global gas glut was driving prices and profits down.
“Our focus is to remain capital disciplined and our intent is to manage our costs,†Todd Levy, Chevron’s president for Europe, Eurasia and the Middle East, said in an interview. The company plans to maintain spending at $18 billion to $20 billion a year to 2020 because the higher oil prices may not be here to stay, he said.
Also looming over oil-company bosses is the question about demand as the world transitions to a cleaner energy system.
Shell and BP predict oil consumption may flatline in the mid-2030s, while Equinor sees a scenario where that could happen in the late 2020s. This could be influencing decision-making, and mega fossil-fuel projects or expensive exploration are unlikely to find favor right now, according to Alasdair McKinnon, fund manager at Scottish Investment Trust Plc, which owns Shell shares.
“A lot of people will be out there saying oil companies are doomed on a 10-year view,†he said. “They are dinosaurs, and there’s going to be some magical new energy in 10 years that will replace oil and gas.â€
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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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