{"id":6696,"date":"2016-07-11T11:54:20","date_gmt":"2016-07-11T16:54:20","guid":{"rendered":"http:\/\/nrgibroker.com\/?p=6696"},"modified":"2016-08-21T14:23:11","modified_gmt":"2016-08-21T19:23:11","slug":"big-oils-45-billion-of-new-projects-signal-spending-revival","status":"publish","type":"post","link":"https:\/\/nrgibroker.com\/en\/big-oils-45-billion-of-new-projects-signal-spending-revival\/","title":{"rendered":"Big Oil\u2019s $45 Billion of New Projects Signal Spending Revival"},"content":{"rendered":"

Two projects worth $45 billion announced this month show the world\u2019s largest oil companies are regaining the confidence to make big investments, emboldened by rising crude prices and low costs that promise to trigger more expansion ahead.<\/span><\/h3>\n

Chevron Corp. gave the go-ahead to a $37 billion expansion in Kazakhstan, the industry\u2019s biggest undertaking since crude started tumbling two years ago. BP Plc signed off on the $8 billion expansion of a liquefied natural gas plant in Indonesia. Two more big projects are likely to get a green light this year, according to industry consulting firm Wood Mackenzie Ltd. and\u00a0Jefferies International Ltd. — BP\u2019s Mad Dog Phase 2 in the Gulf of Mexico and Eni SpA\u2019s Coral LNG development off Mozambique.<\/span><\/h3>\n

Crude\u2019s recovery from a 12-year low and a decline in project expenses have emboldened executives to start spending again after cutting more than $1 trillion in planned investments\u00a0planned investments\u00a0amid sinking earnings. While protecting balance sheets is important, explorers need to at least begin a new phase of investment in exploration and production\u00a0to ensure future growth.<\/span><\/h3>\n

\u201cWe have seen a recent pick-up, demonstrating that projects deemed strategically important are still going ahead,\u201d said\u00a0Angus Rodger, a Singapore-based principal analyst for upstream research at Wood Mackenzie. He expects about 10 decisions on midsize to large projects this year from fewer than 10 last year, though still well below the annual average of 40 before oil crashed.<\/span><\/h3>\n

While the price slump hit profit hard, it has also driven down costs of services and equipment, including rigs. Drillers have renegotiated contracts to get better deals from suppliers as reduced demand creates a buyers\u2019 market.\u00a0<\/span><\/h3>\n

BP has knocked more than half the cost off its Mad Dog Phase 2 project. Estimated at $20 billion four years ago,\u00a0it\u2019s now expected to cost less than $9 billion, Chief Executive Officer Bob Dudley said last month. Rig-rental rates are likely to stay down because of an oversupply, while low steel prices are reducing the cost of other equipment, he said.<\/span><\/h3>\n

Chevron and its partners including Exxon Mobil Corp. approved the Tengiz expansion after postponing the decision last year as\u00a0oil prices were falling.\u00a0Like BP, Chevron estimates it has been able to bring costs down far enough to make the investment viable.\u00a0Output is expected to start in 2022.\u00a0<\/span><\/h3>\n

Tengiz \u201chas undergone extensive engineering and construction planning reviews and is well-timed to take advantage of lower costs of oil industry goods and services,\u201d Jay Johnson, executive vice president for upstream at Chevron, said in a statement.\u00a0<\/span><\/h3>\n

Protecting Dividends<\/strong><\/span><\/h3>\n

Chevron\u2019s and BP\u2019s investment decisions \u201care a signal that they\u2019re more confident of their ability to pay their dividend,\u201d said Jason Gammel, a London-based analyst with Jefferies. \u201cIt\u2019s showing more confidence\u201d in cash flows.<\/span><\/h3>\n

As earnings fell, companies faced a choice between protecting dividends and cutting investment. The biggest opted to protect payouts, canceling projects and firing thousands of people. While some analysts criticized that strategy, bosses including Ben Van Beurden of Royal Dutch Shell Plc said they were doing what shareholders wanted.\u00a0<\/span><\/h3>\n

Brent crude rose 0.8 percent to $46.76 a barrel\u00a0on the London-based ICE Futures Europe exchange on Friday. That\u2019s less than half what it was two years ago. It means\u00a0earnings remain under pressure and companies are still planning to keep overall expenditures low expenditures low to preserve their balance sheets.<\/span><\/h3>\n

\u201cBig Oil is still going to be conservative in their spending,\u201d said Brian Youngberg,\u00a0an analyst at Edward Jones & Co. in St. Louis, Missouri. \u201cThose days of several of these big projects going on at the same time are in the past.\u201d<\/span><\/h3>\n

Crude Turnaround<\/strong>\u00a0<\/strong><\/span><\/h3>\n

Some, including\u00a0Ian Taylor,\u00a0CEO of Vitol Group, the world\u2019s largest independent oil-trading house, believe crude\u2019s recent rise is unlikely to last as demand growth slows. Brent also climbed in the first half of 2015 before sliding more than 40 percent by year-end.\u00a0<\/span><\/h3>\n

Chevron\u2019s and BP\u2019s plans are for expansions of existing projects rather than something built from scratch. They are easier to push through because they maximize existing infrastructure, said Brendan Warn,\u00a0a managing director at BMO Capital Markets in London.\u00a0<\/span><\/h3>\n

By contrast, Eni\u2019s plans to exploit its giant Coral gas discovery off Mozambique include the first newly built floating LNG plant in Africa. Eni CEO Claudio Descalzi said in April he is \u201cpractically sure\u201d the company will make a final investment decision this year.<\/span><\/h3>\n

\u201cUnless oil prices do something very drastic and go lower, these companies\u00a0now have many projects in their portfolios to pick from,\u201d said Iain Armstrong, a London-based analyst at Brewin Dolphin Ltd. \u201cTimes have improved.\u201d<\/span><\/h3>\n

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Copyright: Bloomberg<\/a><\/span><\/h3>\n","protected":false},"excerpt":{"rendered":"

Two projects worth $45 billion announced this month show the world\u2019s largest oil companies are regaining the confidence to make big investments, emboldened by rising crude prices and low costs that promise to trigger more expansion ahead. Chevron Corp. gave the go-ahead to a $37 billion expansion in Kazakhstan, the industry\u2019s biggest undertaking since crude […]<\/p>\n","protected":false},"author":1,"featured_media":6699,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1017],"tags":[914,854,238,915,199,208],"class_list":["post-6696","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-bp-chevron","tag-crude","tag-gulf","tag-investment","tag-mexico","tag-oil"],"_links":{"self":[{"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/posts\/6696","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/comments?post=6696"}],"version-history":[{"count":0,"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/posts\/6696\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/media\/6699"}],"wp:attachment":[{"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/media?parent=6696"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/categories?post=6696"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nrgibroker.com\/en\/wp-json\/wp\/v2\/tags?post=6696"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}