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Oil multinationals leave heavy years behind

Printed below is an English translation of an article published today by the Dutch Financial Times, Financieele Dagblad

Oil multinationals leave heavy years behind

Bert van Dijk • Entrepreneurship

Fossil fuel companies may be subject to fire from environmental organizations, ‘green’ shareholders, financial regulators and prosecuting climate lawyers, but financially speaking the big oil and gas multinationals are back on their feet after a number of difficult years.

That is the most important conclusion now that four of the ‘Big Five’ have published their annual results. Cost savings, higher oil prices and rising demand for oil and gas in the world led to a total of more than $ 115 billion in operating cash flow for Shell, ExxonMobil, BP and Chevron combined and more than $ 51 billion in profits last year.

The sector has experienced worse years.

Uncrowned king

Although Shell, ExxonMobil, Chevron and BP all showed strong profit improvements, there are important differences. For example, shareholders at Shell, Exxon and Chevron were counting on more, and the refining branch (Chevron), operating cash flow (Shell) and production (ExxonMobil) in particular disappointed.

Uncrowned king of the past week is BP. The British oil and gas company is still plagued by billions of depreciations more than seven years after the oil-drilling platform Deepwater Horizon in 2010, but BP has put things back in order again according to CEO Bob Dudley.

New oil and gas

‘2017 was one of the strongest years in BP’s recent history’, according to Dudley in a press statement. This is mainly due to a strongly increased production. BP started seven major new oil and gas projects last year in Egypt, Trinidad, Oman, the North Sea and Australia, which led to a 12% higher production.

The company pumped more oil and gas up than the last seven years. Moreover, in 2017, BP discovered new oil and gas fields in countries such as Ivory Coast and Brazil and could add about one billion barrels of new oil to its reserves. That was the best exploration year for BP since 2004.

More value for money

That BP trumps its rivals with higher oil and gas production can be a matter of timing. ExxonMobil has a major project under development in Guyana that is due to start in 2020 and Shell recently came out as the big winner of an auction of large concessions in the deep sea off the coast of Mexico. That will lead to new production in a few years.

The activities and new investments show that the end of the oil and gas industry is far from in sight. In absolute terms, the capital investments of Shell and its competitors may well have decreased considerably, due to innovations and cost pressures among suppliers, the oil companies will receive more value for their money for every dollar. ‘Improved capital efficiency helps us to get more for the lower number of dollars we spend’, according to Shell CEO Ben van Beurden to analysts last week.

Share purchase

Together with cost savings and reduced investments and debts, there is also sufficient financial space left to purchase shares. Shell has also promised shareholders to buy back shares, but the exact moment depends on the further reduction of the debt at the company.

A few quarters ago in the financial world the question was: Can oil companies still pay their dividends? That question has since changed in: When will oil companies return their surplus cash to shareholders?

Climate?

And the climate and sustainable energy? Solar panels and windmills increasingly decorate the headlines and the public debate, but in the annual figures of the largest energy companies in the world they play little to no role of significance. In the English-language press releases of Shell, Exxon and Chevron, the words’ renewables, ‘solar’ and ‘wind’ even appear exactly zero times.

DUTCH SOURCE

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