Looks like "big oil" is all set to receive a big crude bonanza courtesy of a partial recovery in crude prices, according to fresh research.
In a note to its clients on Monday (July 23), ratings agency Moody's says the likes of ExxonMobil, Chevron, Royal Dutch Shell, Total and BP are all in line for improved profits.
The five major integrated oil companies responded to the oil price collapse by cutting costs, slashing capital spending and divesting assets, and by doing so, positioned their businesses "to prosper in a world of range-bound commodity prices."
Since the slump, the five majors have brought down their capital costs by reducing oilfield services costs and increasing efficiencies, and by undertaking fewer large projects.
"The companies' principal business risk is oil and gas price volatility, and they proved their fundamental strength through the depths of the oil price crash," says Pete Speer, Senior Vice President at Moody's. "And in today's improved environment, we expect them to continue to pursue efficiencies and maintain competitive cost structures in order to reap the benefits of higher prices."
Moody's also expects a 5% annual increase in total capital spending for these companies in 2019. Meanwhile, improving oil prices have allowed the five oil majors to fully fund capital expenditures and dividends from operating cash flow.
Alongside global diversification, the majors' large, tangible-asset scale gives them significant cost advantages over smaller energy companies, and provides abundant assets that can be sold to raise cash during times of industry distress, the agency added.
They also prioritize risk management and long-term planning as a core competency, while maintaining strong flexibility to absorb periodic shocks, the agency's report further notes.
Speer adds: "Over the decades, integrated oil companies have withstood government expropriations of their producing assets and being locked out of many prolific, low-cost oil and gas basins, while technological and regulatory changes have sometimes required significant capital investments and operational changes.
"Such experiences have made these companies institutionally resilient to adverse events and regulatory change."
Moody's thinking chimes with analysts' expectations on Wall Street and the City of London. A Thomson Reuters' poll of market observers expects ExxonMobil to post a 62% increase in quarterly profit to $5.45 billion on Friday (July 27).
Chevron is expected to post quarterly profit of $4 billion on Friday; more than double over the same quarter a year ago. Shell is expected by analysts to post a 68% jump in quarterly profit to $6.08 billion on Thursday (July 26), while many expect BP to post a more-than fourfold jump in quarterly profit to $2.66 billion on July 31.
A combination of oil production cuts by OPEC and 10 non-OPEC oil producers, and supply shocks from Libya, Nigeria and Venezuela have seen the crude price rise by as much as 10% since January, with Brent capping $80 per barrel at point over the course of the year; the benchmark's highest level in nearly three years.
Date: Jul 24, 2018