Investors still skeptical about investing in oil industry despite rally in prices

ENERGY COMPA NIES and investors are not keen on spending on oil and gas projects despite crude prices surging to four-year highs, a senior Goldman Sachs banker has said.

They are rather focused on the profit. Oil investors were thrown off their game after the recent downturn in the sector, long-term concerns over oil demand and the switch to renewables, and as a result of which “Big Oil” seems to be facing an unprecedented challenge.

“We’re firmly through that survival phase and the better capitalized players are now positioned to do well on the other side of it,” Andrew Fry, global head of energy at Goldman said at the Oil & Money conference in London.

Companies typically seek to increase spending as they emerge from a downturn in order to capture low drilling costs and an expected supply shortage.

But this time round, the barriers for investments are high, with investors seeking returns of as much as 15 to 20 percent from multi-billion dollar oil and gas projects, Fry said.

“In the near term the focus is on returns as opposed to growth for the sake of growth,” he said.

As a result, companies are currently focusing on buying back shares and paying divileum dends to investors with the excess cash they generate.

“For the first time since the downturn, the oil companies now have their balance sheets in order. They are all starting to think about growth but it is very conservative,” James Janoskey, global co-head of oil and gas at JPMorgan, said.

“When we came out of downturns in the past, we didn’t have energy transition issues and there probably wasn’t that much pressure from investors,” he explained.

We’re firmly through that survival phase and the better capitalized players are now positioned to do well on the other side of it