European Oil, Gas Companies Looking to Cut Costs Further
European oil and gas firms Eni S.p.A, Total S.A and Statoil ASA all revealed in their latest financial results that they are looking to cut costs due to the continued low oil price environment.
Italian energy company Eni stated that it expects to carry out a number of initiatives intended to reduce capital spending, in order to cope with the slump in crude oil prices, including re-phasing and rescheduling capital projects, being more selective with exploration plays and renegotiating contracts for the supply of capital goods. Eni forecasts a 20 percent reduction in spending for the full year as a result of these changes.
Oil and gas analysts at investment bank Jefferies stated that Eni is increasingly relying on divestitures in order to prevent a dividend cut, adding that the company expects to make more than $7 billion worth of divestments from 2016 to 2019. The majority of asset sales should come from upstream, according to Jefferies, with equity in Area 4 offshore Mozambique likely to get sold first.
French integrated oil and gas firm Total echoed Eni’s stance and vowed to lower its breakeven price, stating that it expects the market to remain volatile. Total is currently in the middle of a cost reduction program which it said was ahead of schedule. The program is aiming to achieve $4 billion in savings by 2018. Jefferies highlights that Total’s 2016 organic capital spending is now expected to be $18 billion, which is the low end of prior guidance, while operating cost reductions should exceed $2.7 billion in 2016.
Norwegian energy company Statoil said it expects to deliver efficiency improvements with pre-tax cash flow effects of around $2.5 billion from 2016. The exploration and production firm stated that its ambition is to keep its unit of production cost in the top quartile of its peer group and revealed that it would be lowering its capital expenditure guidance for 2016, from $12 billion to around $11 billion.
Eni reported a 3Q adjusted operating profit of $282 million (EUR 258 million), which marked a 66 percent reduction year-on-year. The company’s hydrocarbon production stood at 1.71 million barrels of oil equivalent per day, up 0.4 percent in the quarter. Total’s adjusted net income in 3Q was $2.1 billion, down 25 percent year-on-year, and its total production for the period was 2.4 million boepd. Statoil’s met operating income was $737 million, down 16 percent year-on-year, and 1.8 million boepd.
Bucking the trend of its peers, Portuguese energy firm Galp Energia is likely to beat its 2016 guidance, according to Jefferies, who states that the company now has one of the strongest balance sheets among the European integrated oil company field.
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