More work though is needed to propagate a pipeline of big commercial deep water projects.
Chevron, Shell and ExxonMobil also have material exposure to US tight oil and are all ramping up spend. Tight oil and unconventional gas will become increasingly important to these three companies – contributing at least a quarter of ExxonMobil’s total output by the mid-2020s.
Third, targeted acquisitions.
Deals have varied in scale, geography and resource theme but have common traits: bolstering existing portfolio strengths and typically low breakeven/long life assets.
Shell/BG is the one big transaction (US$82bn), positioning Shell in prime Brazil oil projects and expanding its LNG business. ExxonMobil has been busiest – BOPCO elevated its modest Permian exposure to a leading growth platform. PNG and Mozambique are long-life, and broaden the company’s options for medium-term LNG development.
Other deals are opportunist, in the main infill, but equally indicative of direction of travel. Maersk consolidates Total’s core conventional North Sea presence with high margin assets on which there is scope for unit cost reduction.
ExxonMobil has been the stand out performer, notching up a new oil province no less (five discoveries in Guyana, over 2.5 bn bbls, project breakeven US$52/bbl, NPV, 15). The wider industry’s lack of appetite for conventional exploration leaves the door wide open for the Majors to reload portfolios.
ExxonMobil, Total, Statoil and ENI have acquired vast positions in under-explored basins during the downturn, much of it with low commitments – providing optionality for medium-term resource renewal.
Fifth, accessing discovered resource opportunities (DROs).
IOCs bid to develop and produce existing large, long-life oil or gas fields, negotiating terms with the host government. Total (Abu Dhabi, Iran), BP (Abu Dhabi, Azerbaijan), Chevron, ExxonMobil and Statoil (Azerbaijan) have all signed concessions in the last three years.
Our analysis suggests returns from DROs awarded since 2014 are pretty attractive, in some cases better than can be achieved through M&A. This may indicate the downturn has shifted negotiating power towards the operator.
We’d go as far as to say a secular shift is underway. The initial impetus for upstream repositioning may have been cyclical, a response to the financial squeeze. But it’s seguing into a strategy.