Major Improvement | Russell T. Rudy Energy LLC
Independent shale operators have proven quite resourceful and resilient in dealing with the oil price collapse. By cutting costs and cancelling projects, they were able to rebound and are capable of making a profit at current, or even lower, prices. Consequently they are largely responsible for driving the current level of activity in the Permian Basin of West Texas and New Mexico, as well as the SCOOP and Stack Plays in Oklahoma.
The major international oil companies have a steeper hill to climb as they have large overhead expenses, long term mega projects with significant sunk costs, and dividend obligations to shareholder that they feel must be maintained in order to stabilize their stock prices. Fortunately, a recent article in “World Oil” makes the case that these super majors can maintain profitability in a $50 per barrel world.
In the first quarter of this year the majors found themselves flush with cash. This was the result of cost-cutting, asset sales and new production from long lead time projects finally coming on stream.
The five international, integrated major oil companies (Exxon, Total, Shell, BP and Chevron) collectively generated $11.4 billion of free cash flow in the first quarter, compared with a shortfall of $14 billion a year ago. Basically, in terms of cash flow, the majors are roughly where they were before the oil price collapse.
While OPEC, Russia, and their allies, are debating whether to extend oil production cuts beyond mid-year, the majors are tentatively starting to invest in new projects. While prices are still relatively weak, drilling and completion costs are much lower. The majors are largely investing in mega-projects overseas, but ExxonMobil is investing $6.6 billion in the Permian Basin as well.
Some majors are still having to borrow money, sell assets or defer some projects to cover dividends, but executives remain optimistic. Shell’s Chief Financial Officer, Jessica Uhl, opines, “Our numbers show we had strong earnings at a $54 oil price in the last quarter. We’re clearly reshaping the company to be resilient in a low-price environment.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2017/5/5/oil-majors-going-strong-in-a-50bbl-market .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
