As Big Oil Shrinks, Boards Plot Different Paths Out Of Crisis

The short-term investment strategy is driven in part by the fact that, unlike for example BP, it already has a pipeline of longer-term projects - it is currently developing some of the world's largest liquefied natural gas (LNG) projects such as the Gorgon and Wheatstone plants in Australia.

Smaller firms ConocoPhillips and Hess have also shifted away from deepwater projects to onshore shale production including in North Dakota's Bakken Shale.

BP was one of very few companies that approved a major project last year, with its $12 billion investment decision in the West Nile Delta gas project in Egypt. The strategy is partly based its plans to see a large part of its future production growth come from gas off the coast of the North African country.

But the company, which reported its biggest-ever loss last week, also does not have the line-up of long-term projects boasted by the likes of Chevron; the development is also driven by the fact it sold more than $50 billion of assets after the deadly 2010 Gulf of Mexico oil spill, leading to a significant decline in output, according to analysts.

"BP aren't digging themselves through a hole. They are investing a little bit through the cycle," said Warn.


Shell, by contrast, opted at an early stage of the downturn to acquire Britain's BG Group in the sector's largest deal in a decade. It will make it a leader in LNG and offshore oil production in Brazil and increase its energy reserves by about a fifth.

The Anglo-Dutch group, which posted its lowest annual income for 13 years last week, expects to complete the deal this month.

U.S. giant Exxon may need to take a leaf out of Shell's book and seek a major M&A deal after it surprised many in the market last week by slashing its 2016 spending by a quarter to $23 billion, said Anish Kapadia, analyst at Tudor, Pickering, Holt and Co.

The capex cut signals the company - which reported its smallest quarterly profit in more than a decade - is not planning to invest in many new projects, he said.

"That is a signal that Exxon doesn't have an attractive enough project queue to invest in and is not willing to invest in upstream, so if it wants to grow it will have to make an acquisition," added Kapadia.

"In this environment with the potential for higher oil price, Chevron are doing the right thing. They can survive over the next few years and have the option to grow. Exxon is at the bottom of the pile. It looks the most expensive but it is hard to justify given the lack of growth outlook."

Tudor, Pickering, Holt and Co. has a 'buy' recommendation on Chevron and Shell, a 'hold' on BP and 'sell' on Exxon.

Norway's Statoil and France's Total, meanwhile, appear to be sitting in the middle ground: both have indicated they will not invest in new projects this year but they also have big projects coming on stream in the coming years that will counter production declines.

(Additional reporting by Anna Driver, Ernest Scheyder, Bate Felix and Stine Jacobsen; Editing by Pravin Char)


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Sonny  |  February 08, 2016
I find it interesting that Exxon is the sell in this article. Of the referenced companies, it seems to have the most stability thus far in this downturn. Stability through the downturn should translate into operational efficiency for the future.