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Majors and Independents primed for record free cash flow generation

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29 January 2021

Majors and Independents primed for record free cash flow generation

Report summary

The international oil companies (IOCs) are primed to generate record free cash flows this year if oil prices remain at current levels (~US$55/bbl Brent). Free cash generation would be more than double previous peaks were prices to average US$70/bbl. Repairing weakened balance sheets will be top of the capital allocation queue. Financial frameworks built around capital discipline and shareholder distributions are here to stay. Investment will recover only slowly even if confidence in higher prices grows. Strategic M&A will continue to favour paper over cash; share buybacks will be favoured in re-deploying any surplus cash post deleveraging. An elite group of financially-strong operators can afford to be more strategic at current prices, allocating capital to grow and decarbonise their legacy business or diversify into low-carbon energy. Others will follow as their balance sheets permit.

Table of contents

    • IOCs are primed for a V-shaped cash flow recovery
    • Deleveraging is the priority
    • How quickly can companies deleverage?
    • Will higher oil prices trigger a new wave of upstream investment?
    • Shareholders could be the big winners in the next up-cycle

Tables and charts

This report includes 5 images and tables including:

  • IOCs’ free cash flow: reported vs. Wood Mackenzie’s forecast*
  • IOCs’ surplus cash flow after investment, distributions, interest and any other costs
  • Evolution of gearing* excluding operating leases by peer group
  • Excess free cash flow between 2021 and 2023 after deleveraging* to 20% (at US$55/bbl and US$70/bbl)
  • The evolution of IOCs annual share buybacks* – will higher prices drive a new peak?

What's included

This report contains:

  • Document

    Majors and Independents primed for record free cash flow generation

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