(Corrects paragraph five to show deepwater projects are beingdeemphasized by some companies, not withdrawn)
* Companies seek to safeguard growth for when marketrecovers
* U.S. firms abandon deepwater projects for shale oil fields
* Britain's BP bets on Egyptian gas, Shell on majoracquisition
By Ron Bousso and Terry Wade
LONDON/HOUSTON, Feb 7 (Reuters) - As oil and gas companiescut ever-deeper into the bone to weather their worst downturn indecades, boards have adopted contrasting strategies to lead themout of the crisis.
Crude prices have tumbled around 70 percent over the past 18months to around $35 a barrel, leading to five of the world'stop oil companies reporting sharp declines in profits in recentdays.
Executives at energy firms face a tough balancing act: theymust cut spending to stay financially afloat while preservingthe production infrastructure and capacity that will allow themto compete and grow when the market recovers.
Companies have opted for differing approaches to securefuture growth, often choosing to narrow focus to their areas ofexpertise and the geographic location of their main assets.
For example, American firms Chevron andConocoPhillips are deemphasizing costly deepwaterprojects to focus on shale oil fields on their home turf. HessCorp, meanwhile, is spending more this year offshorethan onshore, a reversal from 2015 spending emphasized onshore.
Britain's BP is betting on offshore gas in Egypt,while Royal Dutch Shell has opted for an alternativeroute as it seeks to safeguard its future: the $50 billiontakeover of BG Group.
In the five years before the downturn began in mid-2014,when crude prices held above $100 a barrel, big energy firms hadraced to expand production capacity, including buying stakes invast, costly fields sometimes located thousands of metres underthe sea, and miles from land.
Over the past year however, companies have slashed theiroverall capital expenditure, scrapping plans for mega projectsthat cost billions to develop and take up to a decade to bringonline.
"Companies want to strike a balance between long andshort-cycle investments while maintaining a robust balance sheetto fund their way through the down cycle," said BMO Capitalanalyst Brendan Warn. Focusing on a specific set of expertiseand geographies allowed them to offer investors a "unique valueproposition", he added.
U.S. SHALE, EGYPT GAS
Chevron, the second-largest U.S. oil firm after Exxon Mobil by market value, last week outlined plans to targetspending on "short-cycle" investments - lower-cost projects thatcan take months, rather then several years, to come online.
In particular, it is focusing on its big presence in shaleoil fields in the U.S. Permian basin at the expense ofhigh-cost, complex deepwater projects after cutting its 2016capital expenditure, or capex, by 24 percent.
"In terms of longer-cycle projects, we aren't initiating. Wearen't initiating any ... You are going to see us preferentiallyfavour short-cycle investments, and if they don't meet ourhurdles, we won't invest," Chevron Chief Executive Officer JohnWatson said in an analyst call.
Even though developing shale wells can be more costly thansome deepwater projects on a per-barrel basis, a much shorterdevelopment cycle and lower execution risks mean that companiescan reap benefits quicker.
The short-term investment strategy is driven in part by thefact that, unlike for example BP, it already has a pipeline oflonger-term projects - it is currently developing some of theworld's largest liquefied natural gas (LNG) projects such as theGorgon and Wheatstone plants in Australia.
Smaller firms ConocoPhillips and Hess have also shifted awayfrom deepwater projects to onshore shale production including inNorth Dakota's Bakken Shale.
BP was one of very few companies that approved a majorproject last year, with its $12 billion investment decision inthe West Nile Delta gas project in Egypt. The strategy is partlybased its plans to see a large part of its future productiongrowth come from gas off the coast of the North African country.
But the company, which reported its biggest-ever loss lastweek, also does not have the line-up of long-term projectsboasted by the likes of Chevron; the development is also drivenby the fact it sold more than $50 billion of assets after thedeadly 2010 Gulf of Mexico oil spill, leading to a significantdecline in output, according to analysts.
"BP aren't digging themselves through a hole. They areinvesting a little bit through the cycle," said Warn.
DEALMAKING
Shell, by contrast, opted at an early stage of the downturnto acquire Britain's BG Group in the sector's largest deal in adecade. It will make it a leader in LNG and offshore oilproduction in Brazil and increase its energy reserves by about afifth.
The Anglo-Dutch group, which posted its lowest annual incomefor 13 years last week, expects to complete the deal this month.
U.S. giant Exxon may need to take a leaf out of Shell's bookand seek a major M&A deal after it surprised many in the marketlast week by slashing its 2016 spending by a quarter to $23billion, said Anish Kapadia, analyst at Tudor, Pickering, Holtand Co.
The capex cut signals the company - which reported itssmallest quarterly profit in more than a decade - is notplanning to invest in many new projects, he said.
"That is a signal that Exxon doesn't have an attractiveenough project queue to invest in and is not willing to investin upstream, so if it wants to grow it will have to make anacquisition," added Kapadia.
"In this environment with the potential for higher oilprice, Chevron are doing the right thing. They can survive overthe next few years and have the option to grow. Exxon is at thebottom of the pile. It looks the most expensive but it is hardto justify given the lack of growth outlook."
Tudor, Pickering, Holt and Co. has a 'buy' recommendation onChevron and Shell, a 'hold' on BP and 'sell' on Exxon.
Norway's Statoil and France's Total,meanwhile, appear to be sitting in the middle ground: both haveindicated they will not invest in new projects this year butthey also have big projects coming on stream in the coming yearsthat will counter production declines.
(Additional reporting by Anna Driver, Ernest Scheyder, BateFelix and Stine Jacobsen; Editing by Pravin Char)
