for Oil Majors
The oil industry continues to struggle despite prices rising and expectations for strong earnings reports. Energy stocks in the S&P 500 declined by 6.6 percent in the first quarter.
The current environment is ideal for the oil majors: Lower production costs, consolidation, and cautious spending allow them to post massive returns.
A series of recent deepwater discoveries has demonstrated that the offshore oil sector is beginning to rebound after years of subdued activity, despite increasing interest in onshore shale drilling.
Fourth-quarter earnings significantly missed expectations, but they do not necessarily negate the broader improving trend for the oil majors.
The oil majors are expected to post $80 billion in organic free cash flow in 2018, but spending is expected to be modest.
The oil majors are posting their best quarterly figures in years, an indication that they are adapting to the new price environment. After several years of spending cuts and rising debt, the largest integrated oil companies have turned a corner.
The glut of supply could last years, threatening to keep prices low until the 2020s, but the oil majors are playing the long game, expecting the demand for gas to grow substantially over time.
Independent producers are struggling to hit output targets at current price levels while the majors are focusing on becoming more efficient.
With existing production facing a stiff market, new oil sands projects might remain too risky for most companies. Suncor Energy’s strategy of handing over much of its cash flow to investors is a sign that oil sands face a rocky future.
Oil majors may not be entirely out of the woods yet, but first-quarter performances suggest that they are on the upswing after nearly three years of mostly red ink.