- Royal Dutch Shell, Total, BP, ExxonMobil and Chevron, have all cut costs, slashed capital spending and divested assets, positioning their businesses to prosper in a world of range-bound commodity prices
- The majors proved their fundamental strengths through the depths of the oil price crash, with their large tangible-asset scale providing significant cost advantages over smaller energy companies, including stronger negotiating power with OFS providers
- The majors prioritize risk management and long-term planning as a core competency, while maintaining strong flexibility to absorb periodic shocks
- On the forward looking front, the majors will use their core skills to address the hazards of oversupply and emerging risks from carbon transition
ExxonMobil, Chevron, Royal Dutch Shell, Total and BP are set to reap the benefits of a partial recovery in oil prices, Moody's Investors Service says in a new report. The five major integrated oil companies responded to the oil price collapse by cutting costs, slashing capital spending and divesting assets, and by doing so, positioned their businesses to prosper in a world of range-bound commodity prices.
"The five major oil companies' principal business risk is oil and gas price volatility, and they proved their fundamental strength though the depths of the oil price crash," says Pete Speer, a Moody's Senior Vice President. "And in today's improved environment, we expect them to continue to pursue efficiencies and maintain competitive cost structures in order to reap the benefits of higher prices."
Since the oil price slump, the five majors have brought down their capital costs by reducing oilfield services costs and increasing efficiencies, and by undertaking fewer large projects, Speer says. Moody's expects a 5% annual increase in total capital spending for these companies in 2019. Meanwhile, improving oil prices have allowed them to fully fund capital expenditures and dividends from operating cash flow.
Alongside global diversification, the majors' large, tangible-asset scale gives them significant cost advantages over smaller energy companies, and provides abundant assets that can be sold to raise cash during times of industry distress. They also prioritize risk management and long-term planning as a core competency, while maintaining strong flexibility to absorb periodic shocks.
"Over the decades, integrated oil companies have withstood government expropriations of their producing assets and being locked out of many prolific, low-cost oil and gas basins, while technological and regulatory changes have sometimes required significant capital investments and operational changes," Speer added. "Such experiences has made these companies institutionally resilient to adverse events and regulatory change."