Date
11 December 2017
Only Royal Dutch Shell has announced an increase in earnings and only because its performance was so poor a year ago that it issued a profit warning. Photo: Bloomberg
Only Royal Dutch Shell has announced an increase in earnings and only because its performance was so poor a year ago that it issued a profit warning. Photo: Bloomberg

Energy groups brace for spending cuts

Investment in oil exploration and gas field development could fall by 20 per cent, or US$28 billion by 2017 from last year as the industry struggles with stretched cash flows.

Some of the largest private sector oil groups are due to report steep falls in earnings. Only Royal Dutch Shell has announced an increase and only because its performance was so poor a year ago that it issued a profit warning, the Financial Times reported Monday, citing Morgan Stanley analysts.

The effects of the collapse will be more acute for smaller, independent producers.

Across the industry, and including nationally owned groups, Wood Mackenzie estimates companies will need to cut overall costs by US$170 billion, or 37 per cent, to maintain net debt at last year’s levels, assuming a price of US$60 a barrel for internationally traded Brent crude.

At less than US$50 a barrel, Brent is now 50 per cent below the 2014 average of US$99.

“Lower oil prices pose the biggest threat to oil and gas industry earnings and financial solidity since the financial crash of 2008,” warned Wood Mackenzie analysts.

Shares in the six largest United States and European groups by market capitalisation — ExxonMobil, Chevron, Shell, Total, BP and ConocoPhillips — have dropped between 4 and 24 per cent since crude plunged from its highs in mid-June last year abover US$115 a barrel.

Apart from Shell, they are expected to report falls of 19 per cent to 57 per cent in their fourth-quarter earnings.

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