Low oil prices have been less of a drag on the big integrated oil companies than it has for smaller producers. Diversified portfolios have allowed the largest oil companies to weather the storm better than their smaller competitors.
To be sure, Big Oil has not gotten off lightly. In fact, some of the largest megaprojects that are only undertaken by the oil majors appear to be huge financial burdens. Having spent billions of dollars on extraordinarily large and complex projects – ultra-deep water, LNG, large oil sands projects – the costs are a colossal weight around the necks of the oil majors. The oil industry has scrapped an estimated $200 billion in future offshore and LNG projects as the industry backs away from the massive costs.
Smaller onshore shale projects that have shorter lead times look attractive by comparison, despite shorter lifespans and relatively high breakeven costs. Wells can be drilled for a few million dollars over the course of a few months, rather than the billions needed for the megaprojects that can take a decade to develop.
At a time in which OPEC is fighting for market share, which could lead to oil prices remaining low for an extended period of time, smaller has its advantages. “The major oil companies are being squeezed,” CEO of Italian oil giant Eni, Claudio Descalzi, said in Vienna in early June. “We need to slow down and look for easier projects away from the complexity of the last 10 years.”
Nevertheless, it pays to be big and diversified. Complex megaprojects may be weighing on the balance sheets of the oil majors, but their extensive downstream assets are paying off.
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