Oil companies cut investments by tens of billions of dollars

Faced with the coronavirus and the crude price collapse, oil and chemical companies are drastically scaling back capital investments to preserve cash. Most major companies have announced multibillion-dollar reductions.

Shell will reduce its 2020 capital expenditure by at least USD 5 billion to USD 20 billion and might even go lower. At the same time, the oil major is will reduce its operational costs by USD 3 to 4 billion in comparison to 2019 levels.

“As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business”, said CEO Ben van Beurden of Royal Dutch Shell, adding that he’s confident that Shell will weather the storm. “The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”

One measure the company has taken so far is halting the construction of a multi-billion dollar ethane cracker which is being built along the Ohio River in Beaver County, Pennsylvania.

French Total and Norwegian Equinor are both reducing their investments by USD 3 billion to USD 15 billion and USD 8.5 billion, respectively. Both companies have also announced big cuts in operational costs of about USD 700 to 800 million and suspended their share buy-back programs of USD 2 billion and USD 675 million, respectively.

Equinor will, in particular, cut its investments in US onshore drilling, while Total said it will mainly reduce its “short-cycle flexible capital expenditures.”

ExxonMobil has not announced details of its actionS yet but CEO Darren Woods did announce that the company “is looking to significantly reduce capital and operational spending in the near-term.”

Saudi Aramco

Saudi Aramco, the world’s largest oil producer, is slashing 2020 Capex by USD 10 billion from an expected USD 35-40 billion range, reports analyst Independent Commodity Intelligence Services (ICIS). “As yet, no one knows precisely the impact on economic activity and energy demand from the coronavirus outbreak, especially in the longer term, and additional efficiencies may be required,” Aramco ‘s CFO Khalid al-Dabbagh told analysts in the company’s Q4 earnings conference call. 

According to ICIS, Aramco has the most ambitious petrochemical expansion plans of any company with multiple new cracker and derivative projects in Saudi Arabia, China, India and the US, planning to spend around USD 100 billion in 10 years time.

Chemical companies

Chemical companies are also scaling back planned investments. Dow CEO Jum Cramer said the company would struggle to meet its investment goal of USD 1.5 billion because of the limitations in the movement of its contractors and engineers as a result of the coronavirus. Dow had already announced it would be investing less in 2020 scaling back its planned investments by USD 500 million in comparison with 2019.

Author: Tobias Pieffers

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