While large discoveries of oil and gas reserves from conventional and shale sources are emerging from many parts of the world, a growing number of international oil companies (IOCs) have chosen to cut their capital expenditures for the year.
The slide in IOC earnings in 2013 has forced majority of them to make cost reduction a primary focus in their quest to boost profits.
From Chevron to Shell to Eni to Total to ExxonMobil, the multinationals now faced with ‘an embarrassment of riches of sorts’ are making strategic choices as regards where to invest capital to improve their financial performance.
In what is the latest announcement of plan to cut capital spending, Exxon Mobil Corporation recently disclosed that its capital spending will decline to $39.8 billion this year from a peak of $42.5 billion in 2013. Excluding potential acquisitions, capital expenditures are expected to average less than $37 billion per year from 2015 to 2017.
The company plans to “maintain a disciplined and selective approach to capital that ensures any new investment will contribute to robust cash flow growth,” said Rex W. Tillerson, chairman and chief executive officer, ExxonMobil.
Royal Dutch Shell Plc had said it would slash capital budget and accelerate asset sales this year. Its capital spending, which totaled $46 billion in 2013 is expected to drop to around $37 billion in 2014, representing a nearly 20 percent decline.
“2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance. We are making hard choices in our world-wide portfolio to improve Shell’s capital efficiency,” Ben van Beurden, Shell chief executive officer, said.
United States-based Chevron had in December announced a $39.8 billion capital and exploratory investment programme for 2014, which is about $2 billion lower than total investments for 2013.
French oil major Total said it expects capital expenditure to fall to $26 billion in 2014 from $28 billion last year.
Italian oil giant Eni said it is cutting its four-year (2014-2017) capital expenditure plan by 5 percent to 54 billion euros ($74 billion.)
With the emphasis now on capital discipline, countries seeking investments for projects will have to ensure that the climate is friendly enough to attract capital from the IOCs.
Projects on the horizon
For ExxonMobil, among significant projects scheduled for startup this year are a liquefied natural gas project in Papua New Guinea, the largest offshore oil and gas platform in Russia, a heavy oil expansion project in Canada and deepwater projects in the Gulf of Mexico.
It anticipates additional project startups in the next few years in several countries, including Australia, Indonesia, Canada, Nigeria and the United States.
Chevron has planned an investment of $35.8 billion for exploration and production activities. Notable major capital investments include developments in Australia, Nigeria, the US deepwater Gulf of Mexico, the US Permian Basin, Kazakhstan, Angola, and the Republic of the Congo.
Total says it continues to pursue its ambitious exploration programme, which include, in particular, high-potential prospects in Brazil, the Kwanza Basin in Angola, Ivory Coast and South Africa.
Clearly, a key factor that will come to play in eventually determining projects to be financed this year by the IOCs, aside from the investment climate, is the capacity of the projects to contribute to cash flow growth for the IOCs.
Femi Asu
