Offshore Investments By Oil Majors Plunge

OFFSHORE rig values have declined almost 42 per cent in the last 12 months, equating to a loss of around $30 billion, Norwegian firm, Bassoe Offshore, said.

It noted that the offshore rig market has had “a pretty bad year”. The company outlined that the pandemic and collapsing commodity prices have resulted in dozens of cancelled rig contracts, project delays, increasing numbers of stacked rigs, operators requesting day rate reductions and a wave of rig owners going into bankruptcy proceedings.

Bassoe Offshore highlighted that the energy transition has also taken off much quicker than most had planned, resulting in many energy companies pledging heavy investment in alternative energy sources. The company pointed out that this means less investment left for oil and gas projects as companies begin their move away from fossil fuels, which is affecting future rig demand.

Bassoe Offshore did note, however, that there has been some improvement in market fundamentals lately, with Brent crude oil reaching $50 per barrel and rig tendering and award activity on the rise. Subsequently, the company said it believes that the current improved environment has prevented values from falling further of late.

“In the past, appreciation would have been expected at this stage, but at present there is not enough momentum to drive values upward,” Bassoe Offshore said in a statement posted on its website.

“To rebalance the market there will need to be a more significant rise in rig demand as well as a substantial reduction in supply, and until the market rebalances, competition for contracts will remain high, prolonging pressure on utilisation, day rates and earnings,” Bassoe Offshore added.

Earlier in the year, United States oil major, Chevron Corporation had announced a 2021 organic capital and exploratory spending programme of $14 billion and lowered its longer-term guidance to $14 to $16 billion annually through 2025. This capital outlook will continue to prioritise investments that are expected to grow long-term value and deliver higher returns and lower carbon, including over $300 million in 2021 for investments to advance the energy transition.

Chevron Chairman and CEO Michael Wirth said: “Chevron remains committed to capital discipline with a 2021 capital budget and longer-term capital outlook that are well below our prior guidance. “With our major restructuring behind us and Noble Energy integration on track, we’re prepared to execute this programme with discipline.”

Chevron’s capital guidance of $14 to $16 billion annually from 2022 to 2025 is significantly lower than its previous guidance of $19 to $22 billion, which excluded Noble Energy. During this time period, as capital is expected to decrease for a major expansion in Kazakhstan, the company expects to increase investments in a number of Chevron’s advantaged assets, including its world class position in the Permian, other unconventional basins, and the Gulf of Mexico.

“Chevron is in a different place than others in our industry. We’ve maintained consistent financial priorities starting with our firm commitment to the dividend. We took early and swift action at the beginning of the pandemic to prudently allocate capital, reduce costs and protect our industry-leading balance sheet. And we’ve completed a major acquisition and restructuring that positions our company to deliver higher returns and grow long-term value,” Wirth said.

Similarly, French oil major, Total and Royal Dutch Shell each had introduced significant cost-reduction masures, as the oil price war and the global spread of COVID-19 combined to disrupt operations.

Following the lead of other supermajors like BP and ExxonMobil, Total and Shell are implementing plans to reduce capital expenditures, operational costs, and cancel planned share buybacks.

Specifically, Total and Shell plan capital expenditure (CAPEX) reductions. Total said will implement CAPEX cuts of more than 20 per cent of its plan this year, or more than $3 billion. Shell is reducing their CAPEX to $20 billion or below, compared to an original plan of approximately $25 billion.

Operational cost reductions. Total had identified $800 million in savings in its 2020 operating costs, while Shell hinted of a reduction in its cash expenditures by $3 – $4 billion compared to 2019 levels.

Share buybacks. Total is suspending its planned $2 billion buyback for 2020, having already purchased $550 million in shares in the first two months of the year. Shell has decided not to continue with the second tranche of its share buyback program, having completed the first tranche.

Shell said in an emailed statement that its initiatives “are expected to contribute $8 – 9 billion of free cash flow on a pre-tax basis. Shell is still committed to its divestment program of more than $10 billion of assets in 2019-20 but timing depends on market conditions.”

– The Nation