Oil Majors Still Years From Repairing Balance Sheets After Price War
HOUSTON, March 8 (Reuters) - Financially strapped oil producers are spending billions to boost production before it's clear that recent crude price gains brought on by OPEC output cuts can be sustained.
Five of the largest publicly traded oil companies - BP, Chevron, Exxon Mobil, Royal Dutch Shell, and Total - are trying to work down debts that totaled $297 billion at the end of December. That nearly doubled the companies' 2012 debt levels.
But even with oil prices about 70 percent higher than a year ago, most companies have yet to reach the point where their cash flow covers annual shareholder payouts and expansion projects vital to the industry's long-term survival.
Add other expenses, such as the interest on debt, and the break-even point is pushed out until at least 2020, industry analysts from Citigroup estimated.
"For the entire oil and gas industry, balance sheets have never been worse," said Fadel Gheit, an Oppenheimer & Co oil industry analyst. Producers, he said, "were in critical condition and have been upgraded to guarded."
For a graphic on oil majors' debt, cash flow and capital spending, see: http://tmsnrt.rs/2mzgTVc
For now, U.S. producers are taking advantage of the price increase spurred by OPEC's production cuts to boost their output. Some of the oil they are pumping would not have been profitable at $40 a barrel, but is with prices holding steady above $50.
The industry is betting that prices will maintain a delicate balance - high enough to repair balance sheets and finance new projects, but not so high that it creates a new glut.
If crude maintains a price in the mid-$50s per barrel, the biggest oil producers could see their cash flows increase by 71 percent on average over 2016, according to Citigroup.
The danger is that too many wells could come back online too soon, undercutting OPEC's effort to reduce global inventories. That could send prices back to the 12-year lows of early 2016.
U.S. shale producers in March are forecast to pump 79,000 barrels a day (bpd) more than in February, when shale contributed about 4.75 million bpd to U.S. output, according to the U.S. Energy Information Agency, reversing production declines last year.
Shale output could rise more than 500,000 bpd by the end of the year, said Daniel Yergin, vice chairman of analysis firm IHS Markit and an oil historian.
"U.S. shale has demonstrated that it's still a player," Yergin said in an interview. "It's going to continue to be a major factor in the global market."
View Full Article
WHAT DO YOU THINK?
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.
Operates 27 Offshore Rigs
- BP Chairman Svanberg to Retire; Search Starts for Successor (Oct 19)
- BP Midstream Partners Seeks To Raise Up To $893MM In IPO (Oct 16)
- BP, Azerbaijan's SOCAR To Sign Caspian Sea Exploration Deal In 2017 (Oct 12)
Company: Exxon Mobil Corporation more info
Operates 13 Offshore Rigs
- ExxonMobil Says Julia, Hadrian South Operations Back To Normal After Nate (Oct 10)
- Iraq's Talks with Exxon on Southern Oilfields in Final Stages-Minister (Oct 09)
- U.S. Gulf Oil Producers Start Evacuating Staff Ahead of Tropical Storm Nate (Oct 05)
Company: Total S.A. more info
- Total CEO: US Shale Oil Industry To See Wave Of Investment (Oct 18)
- Total's CEO Says Will Try To Move Ahead With Iran Gas Project (Oct 17)
- Total Expands Presence in Mexico (Oct 12)
Company: Chevron Corporation more info
- Chevron Approves New Tech Investment To Raise Output At North Sea Field (Oct 20)
- Canada's Keyera Signs Pact With Chevron To Transport, Store NGL (Oct 10)
- Chevron Starts LNG Output at Australia's Wheatstone (Oct 09)
Company: Royal Dutch Shell plc more info
- Shell Shale Leader Discusses the 'Non-Moonshot' (Oct 17)
- Jacobs Signs Sulfur Recovery Tech Deal with Shell-Pique's JV (Oct 11)
- Refinery Blazes to Dent Shell 3Q Earnings (Oct 05)