Oil &Gas Capex Outlook For 2021

Re-posting as a stand-alone post.

Westwood Global Energy Group outlook. Quite surprising "data point" regarding "17 selected US shale producers." Analysis of three E&P peer groups:

• five Supermajors:
• four selected National Oil Companies;
• seventeen selected US shale producers
• bottom line, not surprising: 2021 CAPEX likely to remain relatively flat or decrease slightly compared to 2020

Summary:

• Supermajors: reinvested 88% of operating cashflow into CAPEX 1Q20 - 3Q20; Brent averaged $41/bbl; reinvestment was the highest ratio of all assessed groups;
• collectively: will cut expenditures by $10 billion
• WTI at $48/bbl is needed in 2021 for operating cashflow to cover both CAPEX and dividends
• NOCs: likely to maintain or slightly reduce CAPEX
• the NOC group is less leveraged relative to the Supermajors and the US shale producers and has capacity to access debt markets as required:
• US shale producers: the least burdened by shareholder pay-outs and managed to be self-funding in 2020, but several companies are still very highly leveraged and servicing debt is likely to be the overriding consideration in 2021
• CAPEX could rise if WTI increases to above $45/bbl
• average "required" oil price (US$/bbl)
• Supermajors: Brent, $48/bbl
• NOCs: Brent, $48/bbl
• US shale producers: $40/bbl

Some data points:

Supermajors:

BP and ExxonMobil reported that capital expenditures alone exceeded OCF in the first 9 months of 2020, with recycle rates of c.117% and 134% respectively. Chevron’s US$7.8bn in shareholder pay-outs exceeded OCF by US$450m.

This cash outflow was funded through new debt issuance but is clearly unsustainable longer term without an oil price recovery.

NOCs:

Saudi Aramco spent c.US$50bn on shareholder pay-outs in the first 9 months of 2020 and c.US$20bn in capital expenditures.

Should Aramco continue with these levels of capex and shareholder pay-outs, then an average 2021 Brent oil price of c.US$55/bbl is estimated to be needed at 2020 production levels for self-funding from OCF, or else further capital raising could be required.

Saudi Aramco raised $8 billion in the debt markets in November. Saudi Aramco has indicated that it will exhibit capital restraint next year (with FY capex potentially as low as US$25bn). Rosneft and Sinopec would also require c.US$55/bbl in 2021, if capex and shareholder pay-outs were to be kept at 2020 levels; though neither firm has issued capital guidance for 2021.

US shale producers:

In aggregate, the 17 company US shale peer group generated US$19.4bn in operating cashflows and spent US$15.6bn in capital expenditures in Q1-Q3 2020, a recycle rate of c.80%. 

The US shale companies paid shareholders on average c.9% of the OCF generated or US$1.7bn over the same period.

Three US shale companies (Pioneer Natural Resources, EOG Resources and Cabot Oil & Gas) paid more than 15% of OCF as shareholder pay-outs, accounting for c.60% of the total for the group.

Of the 17 assessed US Shale companies, 10 reduced net debt during Q1-Q3 2020, showing that deleveraging has been the key priority for the group.

Comment: this seems a fairly bullish report for US shale producers but the analysis was done during a favorable political (Trump) environment; this all changes under a Biden environment.