Tightening Opportunities For IOCs
BMI View: Listed oil and gas companies are increasingly supporting their share price through buybacks as growing industry costs are limiting low-risk investment opportunities. Investment growth will be focused on higher-margin projects, with North America and the Middle East offering the best opportunities.
Cost increases and low interest rates are driving public oil and gas companies to take on more debt. In the EIA's review of 127 listed oil and gas firms, based on 2013 year-end reports, there was a USD109bn difference between income from operations and total cash expenditure. Much of this was supported by low-cost debt.
Capital expenditure (capex) on exploration and production (E&P) has risen strongly over the last five years, supported by high oil prices over this period. According to Barclay's E&P survey for 2014, which covers over 300 companies including national oil companies (NOC), global capex is forecast to reach USD723bn in 2014, up USD281bn from that spent in 2010. At the same time oil prices have remained more or less flat. Companies are therefore investing more, though not receiving the same increase in oil price.
|E&P Capex (USDbn) And Front-Month Brent (USD/bbl)|