As they seek cleaner and cheaper projects, many oil companies are struggling to offload mediocre ones
OIL AND gas firms, which report second-quarter earnings in the coming weeks, are cutting investment and trying to sell billions of dollars’ worth of resources. Even before covid-19 lockdowns hit energy demand and oil firms’ profits, investors were wary of big projects. Now the risk of costly stranded assets has grown more obvious. Last month BP and Royal Dutch Shell, an Anglo-Dutch rival, said they would take write-downs of up to $17.5bn and $22bn, respectively, on assets.
The supermajors have worked to cut costs. Last year the average oil price needed to cover capital spending and dividends for the five biggest—ExxonMobil, Shell, Total, Chevron and BP—was less than half what it was in 2013, according to Goldman Sachs . The pandemic hit to demand has prompted further cuts to capital budgets. For some giants this coincides with a slow shift to cleaner energy.
As they seek cleaner and cheaper projects, many companies are struggling to offload mediocre ones. BP is the sole supermajor to meet its divestment target, of $15bn—in part thanks to the decision in June to sell its petrochemicals unit, a business that rivals view as having brighter prospects than drilling. In the past finding a buyer for an oil- or gasfield was not that difficult.
In China a crackdown on corruption has made state-owned oil companies less acquisitive amid closer scrutiny of foreign deals. Private-equity firms no longer have an easy exit strategy for energy investments because uncertain regulation and demand make it hard to envision a successful listing or sale to an oil major in a few years’ time.
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