Oil & Gas Middle East – November 2018

(Jacob Rumans) #1


oilandgasmiddleeast.com NOVEMBER 2018

linked to oil prices. Also, the dif-
ference between the highest and
lowest revenue per BOE among
the majors narrowed; in 2017 it
was $5, down from $20 in 2013.
Total remains the most effi-
cient major in terms of operating
costs. In part, this indicates that
it operates in emerging markets.
But other oil majors have also
cut costs—Royal Dutch Shell
slashed its unit costs by more
than 50%. Even at affiliates,
costs have reduced, stemming
from cuts, operating efficiencies
and improvements in logistics.
Foreign currency movements
also favoured subsidiaries not
operating in US dollars.

Rising leverage
Leverage increased through
the downturn, exacerbated by
a fall in dividends from equity-

accounted joint ventures and
affiliates. An upsurge in the level
of fixed-asset disposals com-
pared with 2013 provided com-
panies with cash to help meet
financial obligations and prevent
an aggressive rise in leverage to
fund capex and dividends. Funds
from operations (FFO) to debt
was roughly 35% on average at
the end of 2017, compared with
almost 85% in 2013.
Looking forward, we expect
average FFO to debt for majors
to rise above 50% by 2020. We
also expect big players will
continue to maintain rigorous
cost controls amidst improving
upstream market conditions. De-
pending on companies’ financial
policy choices, some might be
better prepared than others to
weather another future period of
low oil prices.

Oil supermajors
were impacted by
low oil prices, but
ultimately proved
their resilience
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