This is the extra free cash flow generated by the 48 companies in our Corporate Service (Majors, NOCs, Independents) at current investment budgets, post-dividends and interest. The Majors alone will deliver around US$70 billion of additional cash flow.
All good, but what to do with all the money? Aside from stashing it on the balance sheet, Tom Ellacott, Head of Corporate Analysis, thinks there are three main options.
First, give it to shareholders.
Paying out US$160 billion would almost double current dividends, though buy-backs are the most likely vehicle.
Access to capital could accelerate the gradual repositioning underway. Majors have begun to focus portfolios around advantaged assets, and other IOCs and NOCs will join in. The flip side is that the rally in oil price opens up the bid-ask spread, making it difficult for buyers and sellers to find alignment on price.
Third, organic investment.
We already expect global E&P budgets to rise by around 10% in 2018, from the lows of 2016/17, before adjusting for any windfall. Most of the increase is in the US Lower 48, which is brimming with low-breakeven tight oil pre-drill inventory. Investors might allow operators to ease up on the tight rein of capital discipline if there’s a compelling value case.