Not the be-all and end-all

The second-quarter results season had an apt backdrop: the oil price scraping around at six-month lows as Europe’s big oil companies reported on their attempts to come to terms with the previous 12 months.

And, to add insult to injury, Opec’s secretariat and the Russian energy ministry held one of their all-talk-no-action meetings in Moscow that did nothing but confirm that in today’s oil market, what you see is what you get. The finance directors tasked with slash-and-burn on jobs, spending and projects will take no succour from Opec’s deadpan statement that “price volatility and the general supply in the oil market… has been less conducive for market stability”.

And Europe’s big players are girding themselves – Shell for a “prolonged downturn”; BP for “a period of lower prices”. No mention of how prolonged this period will be because no-one knows. So while BP, Shell, Repsol, Eni and Total, along with Norway’s Statoil, are not quite preparing for the worst, they are girding themselves for some pretty rough times.

Capital expenditure (capex) is taking a hit across the board, and this will do little for future organic production growth – a metric that is already underwhelming. Shell particularly, which suffered a confluence of outages that pushed its output down 11pc. Not what’s needed when the price is low. But BG today said its output was at a record in the quarter, which goes some way toward justifying Shell’s eye-catching purchase price and may remind one or two boards that it is possible to buy increased production.

Otherwise, it is a massive struggle to adjust to what has happened since the oil price peaked a year ago, for explorers, producers and service companies alike. How hard this adjustment has been will become clearer the longer this new price environment continues — by the time this year is out, and should all the price forecasts be correct, there will be an opportunity to compare before and after on a more like-for-like basis. Then may be the time for M&A moves to be made.

And by that time, the costs of renewing business in Iran should be clearer. The long-delayed and often-cancelled roadshow for the new Iranian contract is due in December, just days before sanctions against the country could begin to be lifted. Europe’s big five will likely have a head-start on their US counterparts, and this could be a salve for falling production and constrained finances.

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