LONDON, Aug 15 (Reuters) - More than half a trillion dollarsof investments in major oil projects over the next decade are atrisk from high costs and low crude oil prices, an environmentalthink tank said on Friday, warning that shareholders' returnscould suffer.
To meet anticipated future demand, oil majors including BP, Chevron, and Eni, are spending billionsto extract harder-to-reach oil, for example from Canadian oilsands and deep below the Atlantic Ocean.
But many of the projects require high crude oil prices toturn a profit or even begin production, Carbon TrackerInitiative (CTI) said in a report on Friday, adding that someplans should be deferred or cancelled to avoid wasting capitalor destroying shareholder value.
"The majors have a potential capital spend of $548 billionover the period 2014-2025 on projects that require a marketprice of $95/barrel," CTI said, adding that $357 billion of thisis earmarked for as yet undeveloped, high-cost ventures.
"(Cancellation or deferral) is becoming increasinglynecessary as near term cash flows are not sufficient to maintainboth dividends and capital expenditure plans."
CTI works to highlight to shareholders how investment infossil fuel resources based on expectations of growing demand might be affected by the global drive to curb climate change bycutting carbon emissions.
The organisation is funded by several U.S. and Europeanfoundations, including the Rockefeller Brothers Fund and theJoseph Rowntree Charitable Trust.
Using capital expenditure and production estimates fromOslo-based Rystad Energy, CTI identified in the report 20 majoroil projects forecast to cost a total $90.7 billion that it saidare candidates for cancellation due to most of them needing acrude price of at least $110/barrel to break even.
Sixteen of the projects involve extraction by drillingdeepwater wells or through processing oil sands.
"This capital could instead be returned to shareholdersrather than being put at risk in projects that are already highcost and low return," CTI said.
According to recent estimates made by the World Bank and theU.S. Energy Information Administration, nominal crude prices areexpected to rise to around $109/barrel by 2025.
Despite rising geopolitical tensions in the Middle East andbetween Russia and the West, prices are at their lowest inmonths, mainly due to ample supply and sluggish demand globally.
Front-month Brent prices hit a 13-month low of$102.10/barrel on Thursday, while the equivalent West TexasIntermediate contract dropped below $96/barrel for thefirst time since January.
CTI said Conoco Phillips and Royal Dutch Shell have the most production potentially at risk from lowprices, while Total and Exxon Mobil were foundto have the largest percentage of their capital expendituresthat are dependent on high crude prices.
CTI urged investors to ask the firms to forecast how lowerprices would impact the projects and future profits.
The organisation in May said investors could spend up to$1.1 trillion over the next decade on projects that will neverreach production due to new environmental rules.
Such measures could slash fossil fuel demand, lower pricesand cut profits, leaving assets and investments "stranded". (Reporting by Michael Szabo; Editing by Greg Mahlich)
BP (BP.)
