Chevron and Shell’s upstream portfolios are the most resilient at oil price at $30 a barrel and offer the highest cash margins at $70/Bbl, according to analysts at Wood Mackenzie.
Tom Ellacott and the Corporate Analysis team at the consulting firm have studied the resilience of the seven oil and gas majors: BP, Shell, Chevron, Eni, Total, Equinor, and ExxonMobil. They tested the majors’ cash margins at Brent $30/Bbl and $70/Bbl through 2030.
The analysis found that Chevron and Shell have the most resilient portfolios, enable to deliver the biggest margin expansion. Their assets are diversified, but a big chunk of it is made of deepwater projects and cash-generative liquefied natural gas (LNG), Kallanish Energy reports.
Neither portfolios have much exposure to high-cost assets, the analysts said, noting that Shell sold most of its oil sands in 2016.
BP’s portfolio also performs “well” at $30/Bbl, buoyed by the large domestic gas projects in Egypt and Oman.
After two oil price shocks in five years, oil and gas companies have been working hard on finding resilience, the analysts said. This new “mantra” among E&Ps translates basically in the ability to thrive through the cycle, making money at the bottom and performing well when prices are higher.
Under Ellacott’s analysis, ExxonMobil’s cash margins are at the low end of the majors’ range at $30/Bbl, despite a growing weighting of deepwater assets.
“The problem is its exposure to high-cost, low-margin assets, principally oil sands but also other areas such as Alaska,” WoodMac said. “ExxonMobil owns 60% of the majors’ 30 lowest margin assets by production at $30/Bbl. Kearl, Cold Lake (oil sands) and Prudhoe Bay (mature onshore oil) are a huge drag on margins at low prices.”
In terms of assets, the analysis shows that deepwater oil projects have high upfront investment and low operating costs, offering opportunities for “very robust margins” once onstream. LNG projects are also highly capital-intensive upfront but can deliver stable, high-margin cash flow for decades. Domestic gas projects may have even more dependable cash margins if the gas price isn’t linked to oil, WoodMac noted.
Chevron’s Gorgon and Wheatstone LNG projects in Australia incurred massive cost overruns, depressed returns, but have led to robust cash margins. These projects “show how serendipity plays a part in resilience,” the analysts said.
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