Are upstream operators poised for cash-flow neutrality?


When will the upstream industry generate free cash flow? The oil price downturn has prompted US$250 billion in capex cuts and distributions since 2014, dramatically reducing the price required for cash flow neutrality. Our corporate analysis experts look deep into our proprietary data to see which companies are best positioned.

As a result of dramatic cuts to capex and shareholder distributions, upstream operators have reduced the price required for cash-flow neutrality by more than 40% over the past 18 months. The average price of US$93 per barrel (bbl) required at the end of 2014 has fallen to US$53/bbl in 2016. With oil prices still struggling to reach that number, many companies remain under financial pressure.

Brent price required to be cash flow neutral

Our recent study comprised around 50 of the 60 companies in our Corporate Service offering, revealing that cash-flow breakevens have fallen 53% for the Diversified North Americans, 50% for the Focused US, 49% for the Conglomerates and 34% for the NOCs. Although the Majors have the lowest portfolio price requirements among the top 50, their dividend programmes comprise a much larger proportion of their overall cash-flow requirement.

In 2016, we expect continued spending cuts and right-sizing for upstream operators even if oil prices begin to tick up in H2. Although the Majors having the strongest balance sheets, high levels of cash burn will remain a concern if oil prices stay low. The US Focused independents will likely buck the trend of increasing debt, primarily through equity issuance and asset sales.

Net debt indexed to 2013

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