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The world's largest oilfield services provider stated on its Q2/16 conference call that the oil industry appears to have reached the bottom of the cycle and is poised for modest growth the rest of this year. Notably, Schlumberger expects a "significant global supply deficit" of crude oil, assuming steady growth in demand, given the sharp decline in spending on exploration and production. Recall that energy companies have halved their E&P budgets since oil prices began their slump in June 2014. Schlumberger's CEO went on to state that "as the opportunities for activity high-grading are exhausted, we should see a further acceleration in the global production decline." Regarding pricing, Schlumberger is now shifting its focus to renegotiating contracts with explorers and trying to recover some of the discounts it was forced to give during the downturn. This is a positive sign for other oilfield services providers trying to increase pricing and clearly signals that there is some appetite among E&P's to renegotiate contracts, Overall, given Schlumberger's credibility as the dominant global oilfield services provider, calling the bottom in the market is a very positive signal for the energy industry as a whole.
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This week saw two of the largest oil projects approved since the start of the crude price route nearly two years ago. Specifically, Chevron Corp. gave the go-ahead to a $37 billion expansion in Kazakhstan and BP Plc signed off on the $8 billion expansion of a liquefied natural gas plant in Indonesia. Further, Industry experts expect two additional mega projects to get the green light this year - BP’s Mad Dog Phase 2 in the Gulf of Mexico and Eni SpA’s Coral LNG development off Mozambique. Notably, a decline in project expenses combined with crude oils recovery from a 12 year low have emboldened executives to start spending again. BP has knocked more than half the cost off its Mad Dog Phase 2 project. Estimated at $20 billion four years ago, this project is now expected to cost less than $9 billion. Overall, the approval of these mega projects clearly signals that big oil companies are regaining the confidence to make large investments, driven by rising crude prices and low costs that promise to trigger more expansion ahead. Further, these approvals are a signal that big oil companies are more confident in their ability to pay their dividend and more confident in their cash flows.
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Jason SawatzkyA Canadian Energy expert Archives
October 2020
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