Oil majors reduce their investments while maintaining their dividends

Oil Majors reduce their investments

Oil: majors’ leverage tips to put up with the crisis

ANNE FEITZ / JOURNALIST – ON FEB. 4TH "les Échos"

Investment reduction of oil majors

·      

Oil: majors’ leverage tips to put up with the crisis

The oil companies have announced some investment reductions from 10 to 15%. Yet they will save their dividends.

The oil majors have unveiled their strategies to adapt to barrel plummeting price. As the brent has lost more than 50% within a six months’ time, every company has announced cuts in their investments, when presenting their financial statements. To date, such savings will amount to USD billions in 2015 to begin with, representing a cut of 10 to 15%.

Yesterday BP published its financial statements and investments will be reduced from USD24-26 billion as expected, to reach USD20 billion. Before BP, Royal Dutch Shell, Chevron and ConocoPhillips announced a cut of USD5 billion over the year, compared with 2014. France’s Total has not yet published its statements, but Patrick Pouyanné, Total managing director, already indicated that investments will be cut to amount to USD23-24 billion, compared with USD 25-26 billion as expected formerly.

Cost reduction strategies

The only one to escape this rule is ExxonMobil: on March, 4^th, the American behemoth will precise its strategy during its investors’ day, but the managing team has already indicated that they don’t intend to set up major changes this year. The group already announced a cut in order to reach  USD37 billion in 2015, to be compared with USD 38,5 billion in 2014 and USD42,5 billion in 2013.

“Last year, majors started to cut their investments, as they invested hugely and already supported a significant increase of costs”, said Sandrine Cauvin, manager of Turgot AM. “Brent price drop leads them to emphasize this trend.” Together with investment reduction, there will be cost reductions plans, which means an increased pressure on suppliers but also means efforts from the staff. Some majors have already announced staff reductions, as Shell or BP. Total has targeted a €1,2 billion of savings instead of the budgeted €800 million and has already announced a job freeze.

Cancellation of high-scale projects

Where will the cuts be done? Without any surprise, the projects submitted to postponement or cancellation are the most difficult projects located in areas facing high production costs. Shell will reduce its presence in Canadian bituminous sands, where Total will stop two major projects too. Chevron will slow down its activities in shale in the United States, to focus on more attractive locations, like Texas Permian basin. The American company has also suspended a drill in Canadian Arctic and its shale gas projects in Poland. There are other locations, like North Sea or very deep off-shore, which shall be affected by these activity reductions. “Yet majors’ flexibility remains limited as operated projects represent some 75 to 80% of their investment costs”, wrote an analyst.

Nevertheless, dividends shall be saved and they represent several billions USD yearly. “Dividends are quite sacred by Shell, I will do all what I can to save it”, explained Ben Van Beurden, Shell CEO. Total, ExxonMobil or Chevron follow this reasoning too.

Anglo-Saxon companies intend to reduce their share redemption programmes yet. Chevron, which redistributed USD5 billion through share redemption in 2014, even announced that the company renounced to such redemption in 2015. And, if the exchange value of the dollar remains low, they will face an increase of their indebtedness. As their indebtedness rate amounts to 9% (ExxonMobil) to 28% (Total), they benefit from a financial relative flexibility. “ Their indebtedness rate may reach 40, even 50%”, Sandrine Cauvin says. Thanks to the cash reserves accumulated during lucky years, majors may stand the shock of a very low price without too much damage. 

French nuclear sector future: nuclear vs renewables

Hi readers,
In this blog, you will find articles translated from the French press about the energy sector in France and Europe, included oil and gas, nukes, renewables sub-sectors, together with explanations about French acronyms and institutions and other resources

Les Échos, January 13rd.

French Nuclear sector future: nuclear vs renewables: Ségolène Royal's views.

Nuclear industry: decommissioning oldest plants and programming new reactors : Royal intends to set up “ a new generation of reactors”

JEAN MICHEL GRADT JOURNALIST | ON JANUARY, 13rd

Here, Ségolène Royal visiting the Civaux nuclear plant in August and intending to boost programming new nuclear plants. – AFP PHOTO XAVIER LEOTY

In a speech released by “Usine Nouvelle”, the Ecology and Energy Minister argues that “in the framework of building a carbon-free economy, nuclear power is an obvious advantage”.

No moratorium on nuclear energy

Don’t count on Ségolène Royal to make a moratorium on nuclear energy. Conversely, she argues that, in order to grant the complete security of this sector, “it is necessary to boost the building of a new generation of reactors, which shall replace older power plants when such plants could not more be renovated”, according to an interview released by the specialized magazine Usine Nouvelle, released last Tuesday.

“In the wake of programming a carbon-free economy, nuclear power is an obvious advantage” and “nuclear demand must be considered in a clever way within a context of energy mix”, the minister adds. Moreover: “If I succeeded in making the Assemblée Nationale vote the energy transition law, that’s because I chose three options.The first one consisted in avoiding opposition between energy sources and the second consisted in pointing out the fact that the French know-how and history in the nuclear sector are one among our advantages, even if some people are quite reluctant to admit it”. Anyone concerned with the latest remark should notice that.

Decommissioning of oldest nuclear plants

The only concessions awarded to the Greens consisted in two measures, written in the energy transition law voted by the Assemblée. The first one insists on the fact that “renewables growth shall speed up”. The second one sets up the upper limit of the nuclear overall production to 63,2 gigawatts (namely its present ceiling) with its consequence as follows: “when both EPR in Flamanville in Manche shall open, two other reactors shall shut down”. Fessenheim, the oldest nuclear plant of the French park, shall close first. Its closure was a promise of the President of the Republic, François Hollande. On January, 6^th, he recalled this promise, during an interview for France Inter radio.

 Ségolène Royal has hammered it: “For now, Fessenheim will close first, as there are not yet other suggestion.” But when? In 2016, as previously expected? The Minister answers: “We shall shut down the reactors as soon as Flamanville EPR shall be operational”. Yet EDF has recently postponed the commissioning of Flamanville to 2017 instead of 2016. 

Going further...

http://www.usinenouvelle.com/article/segolene-royal-il-faut-batir-de-nouvelles-centrales-nucleaires.N307067

(into French)

http://www.world-nuclear.org/info/Country-Profiles/Countries-A-F/France/

(into English)

http://www.carbonbrief.org/blog/2014/08/the-trouble-with-europes-ageing-nuclear-power-plants/