Strong upstream activity despite IOCs’ capex cut

Oil services provider Schlumberger sees a ‘strong’ outlook for upstream activity in the second half of 2014, with its international businesses expanding in all geographic markets and North America offering growth opportunities, particularly in onshore shale plays.

As the global economy continues to recover, the global oil market is relatively tight, although solid demand has been offset in part by pockets of supply uncertainty due to political events in parts of the world, according to Paal Kibsgaard, chief executive officer, Schlumberger.

But in general, Brent crude that is holding above $100 per barrel should encourage investment in oil-directed activity as US production continues to grow, Kibsgaard said.

In 2014, “we continue to expect well-related E&P investment levels to grow north of 6 percent, driven by more development than production-focused activities,” he said. Meanwhile, “exploration spending will be largely flattish in 2014 driven by lower seismic spending as international oil companies focus on free cash flow generation.”  

Internationally, where the market is “highly competitive,” Schlumberger’s revenue grew 5 percent year-over-year on strong growth in the Middle East, Asia and Europe/Africa, while the pre-tax operating margin was 24 percent — a level not seen since before the global recession began in 2008, Kibsgaard said. 

While large discoveries of oil and gas reserves from conventional and shale sources are emerging from many parts of the world, a growing number of international oil companies (IOCs) have chosen to cut their capital expenditures for the year.

The slide in IOC earnings in 2013 has forced majority of them to make cost reduction a primary focus in their quest to boost profits.

From Chevron to Shell to Eni to Total to ExxonMobil, the multinationals now faced with ‘an embarrassment of riches of sorts’ are making strategic choices as regards where to invest capital to improve their financial performance.

Royal Dutch Shell Plc had said it would slash capital budget and accelerate asset sales this year. Its capital spending, which totaled $46 billion in 2013 is expected to drop to around $37 billion in 2014, representing a nearly 20 percent decline.

United States-based Chevron had in December announced a $39.8 billion capital and exploratory investment programme for 2014, which is about $2 billion lower than total investments for 2013.

French oil major Total said it expected capital expenditure to fall to $26 billion in 2014 from $28 billion last year.

Italian oil giant Eni said it was cutting its four-year (2014-2017) capital expenditure plan by 5 percent to 54 billion euros ($74 billion.)

FEMI ASU