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Big oil production is still growing despite capital expenditure cuts

S&P Global Ratings published a report on concerns rising from the  downturn in the oil and gas industry Although the oil majors have been cutting capital expenditure (capex) and postponing final investment decisions on major  developments since 2014, S&P does not consider that their cost  cutting has hit production.

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 recognizes 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.

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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 our view, this is not the case for the majors. Despite cutting investments by nearly 50% 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.

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Key Takeaways

– Despite cutting capital expenditure since 2014, concerns that the big oil companies would suffer from under investing have proved unfounded, in our view.

– At some companies, proved reports took a hit as the fall in prices affected the economics of some projects. Nevertheless, projected and actual production at the major oil companies has risen.

– Credit metrics for the companies are recovering to rating commensurate levels, but aggregate debt remains well above 2013 levels.