Price Fall Hastens Decline Of 'Big Oil' As Western Majors Retreat

And given that the seven majors have already sold assets worth $150 billion in the past four years, they are gradually turning from super-majors into mini-majors: still among the biggest companies in the world but no longer with the size to bend prices to fit their investment cycle.

"Oil companies are in a period of circumspection, which will only be prolonged with the oil price pullback... It is quite clear the business cannot sustain itself with Brent below $100," said Charles Whall, fund manager at London-based Investec Asset Management, which invests in Shell, Total, Chevron, Exxon and Statoil.

Last year, most majors would have needed a price of $120-130 per barrel to balance their budgets without borrowing, selling assets or cutting payments to shareholders in the form of dividends and share buybacks.

With promised spending cuts, financials were expected to be back in balance by 2016 based on average oil prices of $110 a barrel, according to Morgan Stanley, which also estimates that every $10 per barrel fall in oil prices translates into a 12 percent decline in earnings.

No Oil Price Help

An old mantra in oil markets says that when prices fall too sharply, companies respond by cutting investment, which in turn leads to an oil shortage several years down the road, helping to propel prices so companies can start a new investment cycle.

That theory may simply no longer work for oil majors.

In 2003, Exxon, Shell, BP, Total, Chevron and Eni produced 11.5 million barrels of oil liquids per day, or 14.5 percent of global output of 79.6 million bpd. Fast forward 10 years and their smaller output of 9.5 million bpd is equivalent to only 10.4 percent of larger global production of 91.6 million bpd.


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steve from virginia  |  October 10, 2014
"Meanwhile the engine of todays growth in oil output - the U.S. shale oil boom - is driven mainly by mid-sized and small producers such as Anadarko, Apache, Occidental and Devon ... " These companies arent doing any better than the majors. Per-well costs have never been higher -- particularly where fracking is required to release oil/condensate. Technology isnt that new ... its just customers are more desperate, giant fields are depleted. Now, the same customers are flat broke, so too are the drillers. Majors have been looking offshore = that has been a disappointment from Kazakhstan to Brazil. Arctic looks to be off-limits -- Russias $600 million Kara Sea well = uneconomic at anything close to todays prices ... much less tomorrows.
Alberto Knox  |  October 10, 2014
Interesting article. i get so caught up in little details of my little corner of the world that I lose sight of the bigger picture. This article is actually comforting to me. I was a little panicked by the precipitous drop in prices. Now i think it might not be that bad for me. I havent seen a dorp in business yet and I just might not.