Oil majors strike it rich on rising crude prices

> Bumper profits but still a far shot from the heady days of old

PARIS: The world’s leading oil companies published a bumper crop in profits last year as rising crude prices helped turn their fortunes around, but they remain cautious and are unlikely to rush out on a new spending spree just yet.

In a flourish of earnings reports over the past week, the picture painted by majors ranging from ExxonMobil and Chevron to BP, Royal Dutch Shell and Total has been a very rosy one.

French giant Total saw its bottom line jump by more than a third, Shell’s net profit tripled, ExxonMobil's fourthquarter earnings rose nearly fivefold, Norway’s Statoil swung back into the black and BP’s profits soared.

In fact, “2017 was one of the strongest years in BP’s recent history,” the British group’s chief executive Bob Dudley told his annual earnings news conference.

Key to this success was the steady rise in crude prices in recent months, driven by a landmark deal between oil-producing countries both inside and outside the Organisation of Petroleum Exporting Countries to reduce the worldwide glut in supply by throttling output.

Correspondingly, after falling from US$115 per barrel in 2014 to under US$35 at the start of 2016, oil prices have been rising, from an average US$44 in 2016 to US$54 in 2017 to nearly US$70 (RM276) this month.

Flush with their newfound profits, the oil majors have raised dividends and announced share buyback programmes, eager to make it up to their shareholders who have become restive after having to do with meagre payouts for years.

But it’s still a far shot from the heady days of old.

Companies have learned to live with low oil prices, slashing costs and investment to become leaner and fitter, and said they have little intention of abandoning that regime any time soon.

Shell’s CEO Ben van Beurden said he now always works on the assumption that oil prices would remain “lower forever”.

“We're sticking to the cost-cutting programmes, despite the rise in crude prices,” said Total CEO Patrick Pouyanne.

Such prudence is evident in the only modest uptick in investment in upstream exploration and production activities. Globally, these investments rose by 4% to US$389 billion last year and should increase by a modest 2% to 6% again this year, according to estimates published by IFP Energies Nouvelles last week. By comparison, the amount totalled US$683 billion in 2014.

The anticipated growth this year is driven almost entirely by independent companies and US shale firms, whose overheads are much lower.

The majors, for their part, expect to cut investment in exploration and production by 16% this year.

Companies are holding back because oil prices look set to remain volatile and vulnerable to fluctuation.

The market’s muchneeded rebalancing could be jeopardised by increased production by US shale firms.

“I’m certain that US independents will again invest a lot to profit from a price of US$60 per barrel and ramp up shale production, so the market is going to remain volatile," said Pouyanne. – AFP