Big oil to cut investment again in 2016

Sun Jan 3, 2016 12:27pm EST
 
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By Karolin Schaps and Ron Bousso

LONDON (Reuters) - With crude prices at 11-year lows, the world's biggest oil and gas producers are facing their longest period of investment cuts in decades, but are expected to borrow more to preserve the dividends demanded by investors.

At around $37 a barrel, crude prices are well below the $60 firms such as Total (TOTF.PA: Quote), Statoil STO.OL and BP (BP.L: Quote) need to balance their books, a level that has already been sharply reduced over the past 18 months.

International oil companies are once again being forced to cut spending, sell assets, shed jobs and delay projects as the oil slump shows no sign of recovery.

U.S. producers Chevron (CVX.N: Quote) and ConocoPhillips (COP.N: Quote) have published plans to slash their 2016 budgets by a quarter. Royal Dutch Shell (RDSa.L: Quote) has also announced a further $5 billion in spending cuts if its planned takeover of BG Group BG.L goes ahead.

Global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22 percent fall to $595 billion in 2015, according to the Oslo-based consultancy Rystad Energy.

"This will be the first time since the 1986 oil price downturn that we see two consecutive years of a decline in investments," Bjoernar Tonhaugen, vice president of oil and gas markets at Rystad Energy, told Reuters.

The activities that survive will be those that offer the best returns.

But with the sector's debt to equity ratio at a relatively low level of around 20 percent or below, industry sources say companies will take on even more borrowing to cover the shortfall in revenue in order to protect the level of dividend payouts.   Continued...

 
A drop of diesel is seen at the tip of a nozzle after a fuel station customer fills her car's tank in Sint Pieters Leeuw December 5, 2014. REUTERS/Yves Herman