Oil Firms Rein in Spending to Save Cash for Dividends

Reuters

OSLO, Sept 5 (Reuters) – Oil and gas firms are cutting back on investments to try and improve profits and save cash for dividends, perhaps signalling an end to a decade-long boom in capital spending.

Companies seeking to bring oil fields into production have splashed out on new drilling, equipment or pipelines, supported by rising oil prices.

But suppliers and analysts expect investment growth to slow sharply this year and in 2014, in line with a projected fall in oil prices. The spending boom has squeezed budgets and forced companies to sell assets and issue debt to pay dividends.

Onshore spending will be hurt the most, including the saturated U.S. shale segment. New ultradeep markets, such as Brazil, West Africa and Mexico, will still flourish, however, as they offer the rare opportunities for big finds.

"Oil firms have a dilemma: They still need to grow their production, which is virtually flat and even declining, so they have to spend but will have to become much more selective," Magnus Lundetrae, the chief financial officer of Seadrill , the world's biggest offshore rig operator said.

"In total they'll spend around $700 billion (this) year...I expect spending to be flat (from next year) ... with onshore declining and offset by deepwater."

Many companies prefer to quietly delay projects but there have been a few high profile casualties already this year including Statoil delaying its $15 billion Johan Castberg project in Norway's Arctic and BP reconsidering its $10 billion Mad Dog project in the U.S. Gulf of Mexico.


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