Goldman: Who needs US$100 oil? Majors make more cash at US$50

SINGAPORE • Oil majors are raking in more cash now than they did in the heyday of US$100 (RM428.49) oil, according to Goldman Sachs Group Inc.

Integrated giants like BP plc and Royal Dutch Shell plc have adapted to lower prices by cutting costs and improving operations, analysts at the bank including Michele Della Vigna said in a research note yesterday. European majors made more cash during the first-half (1H) of this year, when Brent averaged US$52 a barrel, than they did in the 1H of 2014 when prices were US$109.

Back then, high oil prices had caused executives to overreach on projects, leading to delays, cost overruns and inefficiency, Goldman said. Those projects are coming online now, producing more revenue, while companies have tightened their belts and divested some assets to reduce debt burdens.

“Simplification, standardisation and deflation are repositioning the oil industry for better profitability and cash generation in the current environment than in 2013-14 when the oil price was above US$100 a barrel,” the analysts said.

In the second-quarter, Europe’s big oil companies generated enough cash from operations to cover 91% of their capital expenses and dividends, showing that they’re close to being able to fund shareholder payments with business-generated revenue, according to Goldman. That will give companies the ability to stop paying dividends by issuing new stock, which has diluted major European energy shares by 3% to 13% since 2014.

Projects starting up to the advantage of their now-frugal parents include Chevron Corp’s US$54 billion Gorgon liquefied natural gas behemoth in Australia and Eni SpA’s Kashagan field in Kazakhstan among others.

Next year, dividends from big European energy firms are expected yield 6%, backed by an estimated 6% free cashflow yield, Goldman said. That compares to an estimated 3.6% dividend yield for the STOXX Europe 600 Index as a whole, according to the report. — Bloomberg