New Big Oil Model | Russell T. Rudy Energy LLC
“World Oil” reports that in a recent study by investment bank Morgan Stanley and the Boston Consulting Group, the authors state that the major international oil companies need a new business model to increase shareholder returns in today’s price environment. The study maintains that share prices could be increased 50% if their recommendations are implemented.
The international major oil companies include Exxon Mobil, Royal Dutch Shell, Chevron, BP and Total. The authors contend that even before the recent price collapse these operators were experiencing lower returns on capital, and some were struggling to generate enough cash to cover dividends and capital projects.
The authors attribute the problems of the international majors to the shale revolution which flooded markets with new sources of crude and consequently drove prices down. The reasoning goes that in this new world, the mega projects undertaken by the large operators are no longer needed. To rectify the situation, big companies need to dramatically reduce costs and institute cost savings and incorporate a savings mentality into their corporate cultures. The focus would need to shift from being broad generalists, to niche specialists.
The study cites 1986 as an example: when prices collapsed the majors cut costs and improved efficiency. “That allowed strong earnings and share performance in subsequent years, despite an extended period of oil price weakness.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/6/29/big-oil-needs-new-model-to-endure-60-crude-morgan-stanley-says .
