GlobalData: limited risk to oil majors’ investments from energy transition in medium term
Published by Nicholas Woodroof,
Editor
World Pipelines,
Major oil and gas companies are increasingly highlighting the alignment of their corporate strategies with climate change goals. They are also pursuing major production growth projects, but the value risk to these investments from the energy transition is limited, according to GlobalData.
The company’s latest analysis shows that planned and announced projects from the six supermajors of ExxonMobil, Chevron, Royal Dutch Shell, BP, Total and Eni are expected to contribute over 5 million bpd of gross oil production by 2025. This comes despite projections of declining oil demand in the 2030s or even the late 2020s in some scenarios.
Will Scargill, Senior Oil and Gas Analyst for GlobalData commented: “The risk to majors is mitigated by the fact that the bulk of their portfolio value comes from near-term revenues. Although oil and gas fields generally produce over a long period of 20 – 30 years, the declining nature of production means that a high proportion of cash flows come in the initial years.
A standard industry discount rate of 10% puts greater emphasis on near-term revenues when assessing value, and the current focus on short-cycle projects compounds this. GlobalData’s analysis shows that across all the supermajors’ portfolio of existing fields and upcoming projects, over 50% of the net present value comes from cash flows up to 2025, while 80% or more comes from cash flows up to 2030.
Scargill added: “The design of fiscal regimes also has a significant effect. In order to incentivise new developments, many governments have designed terms that allow companies to rapidly recover their investments through accelerated tax allowances, cost recovery, or other mechanisms that improve cash flows in the first years of production. This combination of factors means that new developments may be subject to the least risk from potential demand reductions.”
Read the article online at: https://www.worldpipelines.com/business-news/21032019/globaldata-limited-risk-to-oil-majors-investments-from-energy-transition-in-medium-term/
You might also like
World Pipelines Podcast: Going global with IPLOCA
In this episode, Elizabeth Corner speaks to Georges Hage, Executive Secretary at IPLOCA, about IPLOCA's insights on the culture and characteristics of the pipeline contractor community, and how it works to support sustainable energy infrastructure.
Energy industry faces short-term instability, yet remains optimistic about long-term prospects, DNV report reveals
The energy industry is braced for short-term uncertainty caused by global instability, but remains optimistic in the long-term, according to DNV’s annual Energy Industry Insights survey.
