Fitch: European Oil Majors Need USD50-60 Brent to Break Even

0
863

Major European oil companies need Brent prices of $50-60 a barrel for cash flow to break even in 2017, according to Fitch Ratings’ analysis.

This represents significant progress from the period of high oil prices, when majors struggled to balance cash flows at $100 per barrel, but may still not be sufficient to maintain credit quality if oil falls from the current level, Reuters reported.

According to Fitch’s preliminary data, Royal Dutch Shell (AA-/Negative), Total (AA-/Negative) and BP (A/Stable) should all be able to cover their capital expenditure and cash dividends from operational cash flows if oil averages $50-60 per barrel in 2017, with Total at the lower and BP at the higher end of the price range.

Depending on actual prices, major oil companies may continue to report negative cash flows in 2017, but aggressive cuts on spending are expected to put them in a safer position.

The actions taken by European majors should be enough provided the recent oil recovery does not prove short-lived.

Oil prices have recovered by around 20% since members of the Organization of Petroleum Exporting Countries and some producers outside the bloc agreed on cutting crude supplies by 1.8 million barrels a day in the first half of this year. Brent was trading at $56 a barrel on Monday.

However, in a $40-45-per-barrel scenario, further measures, such as dividend cuts and further capex reductions, might be needed if oil majors are to defend their credit quality.

The actions of some US companies show that this is possible. ConocoPhillips (A-/Negative), which unlike European majors has no downstream operations to support its cash flows, has a break-even price below $50 per barrel.

ConocoPhillips slashed capex by around 70% compared to the 2014 level, and cut dividends by around 60%.

The report said that massive asset disposal programs should help the European oil giants reduce their net debt, which increased due to the 2015-16 cash-flow deficits.

Disposals are particularly important for Shell after its BG acquisition. The company’s ambitious $30 billion disposal target now seems feasible following the announcement of a further $5 billion in assets sales and another $5 billion under negotiation, on top of $4.7 billion received in 2016.

SHARE
Previous articleFitch Rates Nigeria’s USD Notes ‘B+’
Next articleNigeria, U.S. companies sign N241.6m solar energy MoU to power 25 communities
Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.