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Big oil is learning to squeeze more cash from every barrel

27/10/2017
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At least that’s the conclusion to be reached following estimates released by Jefferies LLC which show that the five biggest oil producers generated about $34 billion of cash from operations in the third quarter.
Following the biggest crude downturn in a generation the oil majors have sought to squeeze as much cash as possible from every barrel produced.
Following the biggest crude downturn in a generation the oil majors have undertaken deep cost cuts and efficiency drives. Projects have been deferred, contracts renegotiated and thousands of employees laid off as the Majors have attempted to generate income in a low-price environment.

 According to BP CEO Bob Dudley however, there remains much more to be done. The target is to be able to fully fund dividends and investments at $40, or even $30 a barrel.

According to the analysis by Jefferies LLC, the likes of BP, Shell and Total are continuing to give a portion of shareholder payouts in shares and are still unable to cover the entire dividend. In the third quarter, BP reduced the price at which it would cover the dividend and spending to $54 a barrel and Shell to $55. Brent crude averaged $52.17 in that period and traded near $58 on Wednesday.
Spending by the five biggest oil companies combined is likely to drop for a fourth consecutive year in 2017.
(Image via Flickr user Sergio Russo).

What about spending?

Whilst the oil majors have striven to cut costs and increase efficiency, are they investing enough in projects to ensure future growth?

This is a key concern for investors.

Spending by the five biggest oil companies combined is likely to drop for a fourth consecutive year in 2017, according to estimates by UBS Group AG. It could rebound next year, but may only reach 2016 levels by the end of the decade.

So, is the industry recovering or not?

As the oil majors are generating more cash from each barrel, it certainly seems as though the industry is rebounding from the deep slump of recent years.

How strong this recovery is, remains to be seen though. Oil industry shares have continued to lag behind the wider market throughout 2017, particularly as investors have questions the sustainability of the rally in oil prices.

It seems the best bet for the oil majors would be to cleave to the ‘lower for longer’ mantra for the foreseeable future…
Tags: Oil & Gas
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Big oil is learning to squeeze more cash from every barrel - Time to read 2 min
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