Oil, Gas Companies Tighten Cash Flow at Expense of Future Growth

The deep cuts oil and gas companies have made to capital investment will enable them to achieve cash flow neutrality. But companies have sacrificed future growth prospects in their focus on cost containment and capital discipline, according to recent analysis by Wood Mackenzie.

The research found that of 56 oil and gas companies found all the companies will achieve cash flow neutrality at an average oil price of approximately $50 per barrel Brent in 2016. A growing list of companies will even be free cash flow neutral below $40 per barrel this year. The companies achieved this goal by cutting exploration and production spend by 49 percent, or $230 billion relative to 2014 levels. As a result, the aggregate five-year compound annual growth rate for production has declined from 3.4 percent at its peak in 2014, to only 1.4 percent in this year’s second quarter.

U.S. independents, who made the most severe spending cutbacks, are the most affected peer group. Wood Mackenzie expects only four companies to grow at double-digit rates between 2015 and 2020. Sweden’s Lundin Petroleum is expected to see the most growth with 31 percent, while almost 30 companies will produce less in 2020 than in 2015.

The other three companies that Wood Mackenzie expects to see double-digit growth from include Range Resources, Pioneer Natural Resources, and Kosmos Energy, Tom Ellacott, senior vice president of corporate research at Wood Mackenzie, told Rigzone. The 30 companies expected to produce less are a mixed bag of companies.

While balance sheet management has been at the forefront of industry’s mind, oil and gas companies will need to move away from survival model and look to the future, said  Ellacott, in a July 26 press statement.

Having adjusted to the new price environment, some companies are seizing the moment with counter-cyclical moves that have repositioned portfolios lower down the cost curve, he said. One example is Exxon Mobil Corp.’s move to acquire Interoil Corp. Ellacott said the acquisition would give Exxon Mobil attractive natural gas resources that could underpin future energy projects.

Ellacott said in the press release that the industry’s smarter capital allocation and efforts to rework projects to reduce costs also are starting to pay off.

Despite some recent high-profile project sanctions, many next-generation projects still fall short of tougher economic screening criteria, particularly in deepwater.

“In the second quarter 2016 results season we’ll be looking for signs of more progress in driving down costs as companies re-engineer developments,” Ellacott stated.

Some oil and gas companies have said that $50 perbarrel is the new magic number that will encourage more drilling or provide the needed lift for cash flow. Earlier this month, Chevron Corp. and BP Plc announced they would move forward with two projects worth $45 billion, a sign that the world’s largest oil companies are regaining confidence to make big investments.

 

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com

WHAT DO YOU THINK?

Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
john weaver | Jul. 27, 2016
$50 oil will pay the bills, but not have new exploration. If you ain't drilling, you are dying on the vine.


Related Companies
 Company: BP plcmore info


 - How Actual Nuts and Bolts Are Bringing Down Oil Prices (Sep 28)
 - Goldman Sachs: Big Oil Was Never That Big A Money-Maker (Sep 19)
 - APPEA Says Great Australian Bight Exploration Vital for Jobs, Investments (Sep 16)
 Company: Exxon Mobil Corporationmore info


 - Oil Industry Welcomes Indonesia's Tax Reform, But Says It's Not Enough (Sep 23)
 - Oil Firms Seen Spending More Next Year For First Time Since 2014 (Sep 23)
 - PNG Government Prefers Exxon, Total Pursue 2nd LNG Project (Sep 22)
 Company: Pioneer Natural Resourcesmore info
 - Pioneer Says Some US Fracking Costs Competitive with Saudis (Jul 28)
 - Fracker Pioneer Posts Wider Second-Quarter Loss on Derivatives (Jul 27)
 - Oil, Gas Companies Tighten Cash Flow at Expense of Future Growth (Jul 26)
 Company: Range Resourcesmore info
 - PwC: Oil Price Stability Drives Uptick in M&A Deals (Jul 28)
 - Oil, Gas Companies Tighten Cash Flow at Expense of Future Growth (Jul 26)
 - Range On Track for 1,000 Bopd in Trinidad by End 2015 (Sep 24)
 Company: Kosmos Energymore info
 - Tullow Starts TEN Production Offshore Ghana (Aug 18)
 - Oil, Gas Companies Tighten Cash Flow at Expense of Future Growth (Jul 26)
 - Kosmos Hits Gas at Ahmeyim-2, Increases Tortue Resources Estimates (Mar 16)
 Company: InterOil Corporationmore info
 - Exxon's South Pacific Gas Grab Derided By InterOil's Founder (Jul 26)
 - Oil, Gas Companies Tighten Cash Flow at Expense of Future Growth (Jul 26)
 - Oil Search Won't Counter Exxon Bid For Gas Explorer InterOil (Jul 21)
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE



Most Popular Articles

From the Career Center
Jobs that may interest you
Manager- Retail Power Settlements & Accounting
Expertise: Accounting|Budget / Cost Control|Gas Plant Operations
Location: Houston, TX
 
United States San Antonio: Account Manager
Expertise: Business Development|Sales
Location: San Antonio, TX
 
Treasury & Credit Management Analyst
Expertise: Accounting|Financial Analyst|Financial Audit
Location: KCMO, MO
 
search for more jobs

Brent Crude Oil : $48.69/BBL 5.91%
Light Crude Oil : $47.05/BBL 5.32%
Natural Gas : $2.952/MMBtu 1.60%
Updated in last 24 hours