Oil
Oil prices crash, But Oil Majors aren’t panicking
Crest OKAMGBA with Agency reports
In just one month, everyone stopped talking about $100 oil, but In six weeks, oil prices slid into a bear market from four-year highs in early October and booked their steepest one-day plunge in three years on Tuesday.
Early on Thursday, Brent Crude was just above $66 a barrel and WTI Crude was at $56, down about $10 from the average price in Q3.
Big Oil—which boasted soaring third-quarter profits on the back of stronger prices—now may have to show if it can continue the growing cash flow and profit trend with its conservative $55-65 oil price assumptions and breakevens for positive cash flows at around $50.
Oil prices are $10-15 above most of the biggest oil companies’ stated breakevens, but the price slide over the past month may put to the test the years of cutting costs and bringing project break evens to as low as possible.
Breakevens at all oil majors may be lower than the current Brent Crude price, but the lower the price of oil, the less wiggling room Big Oil has to rake in more cash and reward shareholders.
“Higher volatility means they will continue to review if their economics work in a more bearish environment,” Christyan Malek, head of the European, Middle East, and Africa oil and gas research desk at JP Morgan, tells Bloomberg.
According to JP Morgan estimates, the break-even oil price for BP is $46 a barrel, for Total it’s $55, for Shell $58, for Equinor $48, and for Eni $59.
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Judging from comments of Big Oil’s top executives in recent months, $50 a barrel seems to be the watershed for most oil majors.
As oil prices stay up over $50 a barrel, we will be surplus free cash as we go into 2020, and 2021. And, of course, we have said our breakeven goes down to $35-40 a barrel by the end of 2021, unless we chose to distribute to shareholders,” BP’s CFO Brian Gilvary said on the Q3 earnings webcast.
Total said in its strategy presentation in September that it had more than halved its post-dividend breakeven to $50 a barrel now, compared to 2014.
“The Group resolutely maintains its programs to improve operational efficiency and reduce the breakeven to remain profitable in any environment,” Total said in its Q3 earnings release.
Shell is aiming for its projects to be able to break even at $40 oil, CFO Jessica Uhl said at the Q3 earnings call.
Norway’s Equinor said in May that it expects to be free cash flow positive in 2018-2020 even at oil below $50 a barrel.
Eni has halved its cash neutrality point—the point at which it will be able to fund capex and dividend—from $114 a barrel in 2014 to $57 a barrel, the Italian major said in its 2018-2021 strategy presentation earlier this year. In the Q3 earnings release, Eni confirmed its cash neutrality for 2018 is at $55 per barrel oil.
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In June, Eni said that its new upstream projects in execution, which account for 65 percent of the development investments in the segment, have a break-even lower than $30 a barrel.
Across the Atlantic, ConocoPhillips says it can break even at $40 oil.
“And so we’ve just really locked in our plans and said regardless of what the cycle is, and we’ve locked in a plan that says we can do this in a sub-$50 world. We can breakeven in a $40 world,” Chairman and CEO Ryan Lance said at a conference in May.
Big Oil’s cost-cutting efforts of the past few years have positioned the companies to make profits and generate cash at around $50-60 oil. With Brent at $66, the oil majors are still comfortably above breakevens, but further slides may really test their ability to continue raising profits and shareholder returns in a bear market in oil.
In a strategic move to revitalize Nigeria’s oil and gas sector, the Federal Government has unveiled two key fiscal incentives aimed at attracting investment and enhancing energy security.
The announcement was made by Mr. Wale Edun, the Minister of Finance and Coordinating Minister of the Economy on Wednesday.
The first initiative, the Value Added Tax (VAT) Modification Order 2024, introduces critical exemptions for essential energy products and infrastructure, including Diesel, Feed Gas, Liquefied Petroleum Gas (LPG), Compressed Natural Gas (CNG), Electric Vehicles, Liquefied Natural Gas (LNG) infrastructure, and Clean Cooking Equipment.
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These exemptions are designed to reduce living costs for Nigerians, promote energy security, and accelerate the transition to cleaner energy alternatives.
The second initiative, the Notice of Tax Incentives for Deep Offshore Oil & Gas Production, offers new tax relief options for deep offshore exploration projects.
This measure aims to position Nigeria’s deep offshore basin as a premier destination for international oil and gas investments, boosting the country’s appeal to foreign investors.
These reforms are part of a broader set of policy initiatives, known as Policy Directives 40-42, endorsed by President Bola Ahmed Tinubu.
The directives reflect the administration’s commitment to fostering sustainable development in the energy sector and enhancing Nigeria’s competitive edge in the global oil and gas market.
By Yemie Adeoye
NIGERIA’s President Bola Tinubu has announced that the protracted ExxonMobil-Seplat upstream oil divestment will be formally approved by the Minister of petroleum within a matter of days, just as he announced his government’s intention to expand the Compress natural Gas, CNG buses initiative.
The President who stated this during his Independence day nationwide broadcast stated that the move is in line with his administration’s commitment to free enterprise, free entry and free exit in investments which is the hallmark of his administration investment policy.
“Fellow compatriots, our administration is committed to free enterprise, free entry, and free exit in investments while maintaining the sanctity and efficacy of our regulatory processes. This principle guides the divestment transactions in our upstream petroleum sector, where we are committed to changing the fortune positively. As such, the ExxonMobil Seplat divestment will receive ministerial approval in a matter of days, having been concluded by the regulator, NUPRC, in line with the Petroleum Industry Act, PIA. This was done in the same manner as other qualified divestments approved in the sector.”
The President also seized the opportunity to plead with Nigerians to be patient with his administration’s reform policies. “As your President, I assure you that we are committed to finding sustainable solutions to alleviate the suffering of our citizens. Once again, I plead for your patience as the reforms we are implementing show positive signs, and we are beginning to see light at the end of the tunnel”.
“Our energy transition programme is on course. We are expanding the adoption of the Presidential Initiative on Compressed Natural Gas for mass transit with private sector players. The Federal Government is ready to assist the thirty-six States and FCT in acquiring CNG buses for cheaper public transportation.
Fellow Nigerians, while we are working to stabilise the economy and secure the country, we also seek to foster national unity and build social harmony and cohesion. Our economy can only thrive when there is peace”. he enthused.
As part of the administration’s push to improve Ease of Doing Business (EoDB), Nigeria’s Vice President Kashim Shettima has expressed support for ExxonMobil’s plan to invest $10 billion in the country’s deep-water oil sector.
Speaking on Wednesday, September 25, 2024, during a meeting with ExxonMobil executives at the 79th United Nations General Assembly (UNGA) in New York, Shettima called the investment “a clear testament to the administration’s economic reforms and investor-friendly policies.”
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This announcement follows news that international maritime company DP World intends to develop a multibillion-dollar port project in Nigeria.
Stanley Nkwocha, Senior Special Assistant to the President on Media and Communications, shared the development in a statement on Wednesday. He quoted Shettima as saying: “ExxonMobil’s potential investment aligns with the vision of President Bola Ahmed Tinubu’s administration for a more investment-friendly Nigeria.
We are committed to fostering an environment that supports such transformative projects.”Shettima also discussed the administration’s broader efforts to improve the ease of doing business, highlighting the “Renewed Hope Agenda,” which aims to simplify bureaucratic processes, enhance transparency, and offer fiscal incentives to attract global investors.
“Our administration has taken bold steps to unify the exchange rate, remove fuel subsidies, and implement tax reforms. These measures, though challenging in the short term, are intended to create a stable and predictable business environment in the long term,” he added.
On the oil and gas sector, Shettima mentioned that the government is revising the fiscal framework for deep-water operations to attract investment while ensuring fair returns for the Nigerian people.
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