Report: Only Three out of Four IOCs Generating Enough Free Cash at $60/bbl

Only three out of the top four international oil companies generate enough free cash flow to cover spending, including shareholder distributions, in a $60/barrel environment, Wood Mackenzie noted. As a result, spending would need to be cut by $170 billion, or 37 percent year-on-year, at $60/barrel to keep net debt flat.

The recent decline in global oil prices has prompted a number of oil and gas companies to cut 2015 spending plans. Marathon Oil Corp. reported Wednesday that it would lower its 2015 capital expenditures by 20 percent due to the sharp decline in oil prices. Other companies such as ConocoPhillips also have adjusted their budgets to reflect lower oil prices.

That same day, Chevron Corp. announced it would put its drilling plans in Canada’s Beaufort Sea on hold due to the economic uncertainty created by lower oil prices. Several Canadian oil producers also reported Wednesday they would slash their 2015 capital budgets, also because of lower oil prices.

The decision by some independents to cut spending indicates that these companies were basing their plans on $70 to 75/barrel assumptions, according to Wood Mackenzie’s Dec. 18 report on oil and gas capital expenditures and merger and acquisition activity.

An estimated $127 billion of global industry greenfield investment in 2015 at risk of referral due to low oil prices, according to a recent report by consultancy Wood Mackenzie. The cuts in spending will likely result in companies focusing on mature, lower-risk plays instead of high-cost, high risk frontier drilling.

Earlier this week, Goldman Sachs reported that $930 billion in future oil and gas investments could be at risk due to low oil prices.

“Operators in an intensive development phase have the least optionality to respond,” said Fraser McKay, principal analyst for Wood Mackenzie’s corporate analysis group, in a Dec. 18 press release. “Most of IOCs [international oil companies] have flexibility to rein in spend to keep finances on an even keel. But shareholder dividends and distributions are likely to be a significant part of the spend cuts for some companies.”


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