Catalytic converter – Five themes from oil majors’ 2015 updates

As the Big Oil year-end 2014 reporting season draws to an end, we reflect on the main messages from the strategy updates. Based on current guidance, majors’ organic capex is set to fall around 13% in 2015, after four straight years of capex hikes. Spend could drop more as service costs are seen declining 20-30% from their 2014 peak. Exploration and pre-FID projects – notably expensive, complex projects such as deepwater, LNG and oil sands – are prime targets for investment cuts. Base capex in high-cost regions is also being trimmed, which should accelerate global decline rates. Majors appear keener on divestments than acquisitions for now, but we would expect to see opportunistic mid-sized asset deals. In our view, Big Oil’s focus on dividends may be preventing managements from acting more countercyclically in a downturn.

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