Record Profits....27 Jun 2021 10:18
Gross revenues at all public upstream firms are set to surge by 55 percent, or by nearly $500 billion, this year compared to last year, thanks to higher oil prices, rising global demand, and a tighter market. Considering that spending levels of listed E&P firms globally are set for just a 2-percent increase this year—courtesy of still strong capital discipline across the board—producers are set for materially higher profits, Rystad Energy reckons.
“Oil demand has gradually increased after the initial shock of the Covid-19 pandemic, and OPEC+ continues to hold back volumes from the market. The consequent high price movement has been further supported by a slow ramp-up in US tight oil activity. In conjunction with the persisting low investment environment, E&Ps are enjoying super-profits,” Espen Erlingsen, head of upstream research at Rystad Energy, said.
Income at the supermajors, for example, nearly returned to pre-pandemic levels in the first quarter of this year, thanks to dramatically higher oil prices. Further upsides in earnings are on the horizon with this quarter’s oil price rally, analysts say.
Higher oil prices, conservative spending, and the benefits of the massive cost cuts from last year are setting the stage for record cash flows at Big Oil this year if the price of oil averages $55 per barrel, Wood Mackenzie said at the start of this year.
This forecast could even turn out to be quite conservative, considering that investment banks and forecasters now see oil prices averaging at least $65 a barrel this year, and a growing number of analysts and top executives at Big Oil aren’t ruling out a brief spike to $100 per barrel in coming quarters.
The immediate priority for E&P firms, including in the shale patch, will be to use the expected super-profits and record cash flows to pay down debts and reward shareholders. Capital discipline will likely hold this year, but upstream investment will need to rise if the world is to avoid sleepwalking into a supply deficit within a few years.
By Tsvetana Paraskova for Oilprice.com
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