The investment value of oil and gas companies’ stocks is evidenced in a recent Sonecon report. According to the report, on average, US$1 invested in oil and gas stocks in FY 2005 by the two largest public employee pension funds in each of 17 American states was worth US$2.30 in FY 2013; by contrast, US$1 invested in all other assets over the same period was worth US$1.68. The recent oil price slide however, has impacted oil and gas companies.
Global oil prices plunged steeply over the past nine months to a near six-year low. In response, oil and gas companies have employed such cost-cutting measures as reduction in capital expenditure (capex) project deferrals as well as staff layoffs, among others. According to Wood Mackenzie, the result has been a 24% reduction year-on-year in capital costs for the industry. It added that the price required for companies to be cash flow neutral in 2015 was cut by more than US$20 per barrel (US$/bbl) to US$72/bbl; however average oil prices for Q1 2015 were US$53.91/bbl (Brent) and US$48.54/bbl (WTI), data from Energy Information Administration, EIA, reveal.
In its 2014 Global Upstream Performance Review, IHS Energy reported a median loss, including dividends, of 34% for 200 publicly-traded Exploration and Production (E&P) companies as well as Integrated Oil Companies (Figure 1).
Three critical operational metrics show the heavy cost burden on the world’s top oil and gas companies: First, unit capital productivity ― which measures the quantity of oil produced per dollar employed ― has declined significantly. Secondly, the massive growth in upstream capex has not been met with commensurate output, and finally, the growth rate in finding and development costs has outstripped that in cash flow. The EIA reports that, for oil and gas companies listed on United States stock exchanges, finding costs for year 2014 increased by US$2.92 per barrel of oil equivalent, US$/boe. Continue reading