After being a pair of Scrooges for the past two years, oil and gas majors BP and Total have rediscovered the joys of treating themselves to shiny expensive presents this holiday season. The gloss comes from access to new low-cost production now and in the future — gifts that keep on giving.
When oil prices started sliding in mid-2014, most oil and gas firms had little choice but to tighten their belts, postponing and cancelling projects, reducing headcount and focusing on efficiency. Two years on, this disciplined approach to spending has made them leaner and, as a result, more confident in their ability to weather the storm of oil prices staying lower for longer.
This confidence was further boosted on 30 November, when Opec countries agreed to reduce oil supply and, several days later, when non-Opec producers led by Russia made a similar move. BP chief executive Bob Dudley sees oil prices at $55-60/bl as realistic next year, which will help take the pressure off the company’s balance sheet.
The combination of more efficient operations and a more stable oil price environment means the likes of BP and Total can now afford to address the main longer-term issue: output and reserve growth beyond 2020.
Since 17 December, BP – further boosted by clarity over its remaining payments related to the 2010 Deepwater Horizon disaster – has announced two deals worth more than $3bn in total. The company is getting access to 170,000 b/d of low-cost oil production in Abu Dhabi, as well as to significant natural gas discoveries in Senegal and Mauritania and a planned floating LNG project in the region. These moves came after BP had already committed money to four other new projects this year and agreed to buy a stake in the giant Zohr gas field offshore Egypt.
For its part, Total has secured a $2.2bn package of mostly upstream assets in Brazil, in addition to a few other stocking fillers this year.
BP and Total’s deals of the past few days have generated many a Christmas-related headline from industry analysts: “Happy holidays”, “All I want for Christmas is more pre-salt”, “Christmas shopping in Brazil” and “Holiday Season Shopping Spree” – to cite a few.
While not linking the Brazil deal to the holiday season, Total chief executive Patrick Pouyanne makes his delight clear: “These agreements will reinforce Total’s position in Brazil through access to outstanding pre-salt resources while entering the promising gas value chain.”
Dudley’s comment on the Africa deal is similar in tone: “BP’s entry into Mauritania and Senegal represents an exciting strategic opportunity to work with [US firm] Kosmos Energy in an emerging world-class hydrocarbon basin.”
Christmas does come early sometimes, so celebrate! But let’s hope there’s no New Year non-compliance hangover.