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European spending, output in 2015


A Platts.com News Feature


European oil majors cut capex, eye output growth


February 24, 2015-- By Stuart Elliott in London


European oil majors have slashed their spending for 2015 in response to the plunging oil price, with the average cut in capital expenditure by six of the region's biggest firms estimated at around 10%.


But despite the budgetary revisions - which, according to Platts, will be a combined $14 billion cut from capital spending this year compared with 2014 - most of the biggest operators in the region expect their oil and gas production to rise in 2015.


Also in this feature: Most European oil majors see higher production


Combined capital spending by Shell, Total, BP, Statoil, Eni and BG Group, according to their 2014 results statements, was $129 billion.


But for 2015, overall spending by the six companies is expected to amount to an estimated $115 billion, more than 10% down on last year.


European major company capex 2014-2015


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Analysts had expected the majors to cut in light of the plummeting oil price, though some of the cuts were bigger than thought.


"We had a 10% ballpark figure. Some cut by more, some cut at around that level," said S&P ratings analyst Beatrice de Taisne.


"The capex cuts have been quite different depending on the company."


BG Group accounted for the biggest reduction of 30%. BG has faced a number of major issues - both financial and operational - in recent years, including big impairments in its Egyptian business and slower-than-predicted production growth elsewhere.


'Forceful' reaction from majors


Analysts at Morgan Stanley said the response from the majors to the falling oil price had been quick and forceful.


"With earnings and cash flow under pressure, the majors are changing course rapidly," Morgan Stanley said.


"[They] are now responding forcefully with aggressive improvement programs."


Shell said it would cut spending by $15 billion over the next three years, which chief executive Ben van Beurden said would equate to delaying or canceling 40 projects.


Nevertheless, the company said its capex in 2015 would be roughly flat or down slightly on the previous year.


S&P ratings analyst Simon Redmond said he expected the majors, like Shell, to continue spending given their long-term vision of oil markets.


"We would expect the oil majors to invest through the price cycle," he said.


S&P, like Platts, is part of McGraw Hill Financial.


One of the benefits of the falling oil price is that costs also come down, and if the capex cuts were to translate into a higher oil price, the majors could stand to benefit.


"In the remainder of the year, there is potential for capex and opex declines to coincide with stable-to-rising oil prices. In that scenario, upside would be substantial," Morgan Stanley said.


Exploration is certainly one of the first areas to see budgetary constraints during times of low prices.


Both Total and Eni said they would spend 30% less on exploration this year.


Shell, though, bucked this trend, saying it would keep its exploration spending steady in 2015, with an estimated $1 billion to be spent on drilling in Alaska alone.


Next article: Most European oil majors see higher production







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