Oil production by US firms still growing despite capital expenditure cuts: S&P
Times News Service
MUSCAT: Since mid-2014, the harsh cyclical downturn in oil prices has tested, and proved, the resilience of international oil majors’ integrated business models. S&P Global Ratings recognises the majors’ downstream refining and petrochemical assets provided them with a cushion as cash flows from the upstream businesses, especially straight exploration and production businesses, plunged.
Those downstream businesses have since taken a backseat as higher oil prices, lower costs, and capital expenditure (capex) help upstream performance recover.
Nonetheless, one of the concerns arising from the industry downturn has been whether the largest oil companies have been underinvesting, as a result of the huge capex cuts since 2014.
In S&P’s view, this is not the case for the majors. Despite cutting investments by nearly 50 per cent and postponing final investment decisions on major developments, activity levels did not drop as much as dollar capex. Indeed, production — both actual and projected — is growing for the majors in aggregate
“Our ratings analysis included a review of the mix and evolution of the supermajors’ production and the reserves that support this production. We also examine the resilience, longevity, competitiveness, and risks of these assets,” S&P said.
Some of the supermajors’ significant upstream and downstream group assets are held in affiliates. An oil company’s production and reserve metrics typically include its share in affiliates, while its cash flow statements and credit metrics show only the dividends received from affiliates or investments made into them.
“Our rating analysis of an oil major considers its upstream businesses and how the financial credit metrics for the whole group measure up against our rating thresholds as well as other factors,” the S&P report said.
From 2014 to 2016, as oil and gas companies struggled with weak oil prices, S&P took several negative rating actions.
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