Page 4 - Euroil Week 12 2020

EurOil COMMENTARY EurOil
Total, Shell, Equinor gear up for market onslaught
The trio are among the latest European oil firms to announce steps to shield themselves from the market turmoil
EUROPE
WHAT:
Total, Shell and Equinor have cut non-essential capex and set targets for opex reduction.
WHY:
The trio want to protect their free cash flow.
WHAT NEXT:
Harder times are still ahead.
FRANCE’S Total, Anglo-Dutch Shell and Nor- way’s Equinor are among the latest European oil firms to announce steps to shield themselves from market turmoil. All three have announced cuts to capital and operating expenditure, while also suspending their buyback programmes.
Total
Total, which is in a stronger position than some of its rivals because it is more exposed to gas rather than oil prices, said on March 23 it would cut over $3bn from its 2020 capital expenditure plan to protect its balance sheet.
The oil major now expects its capex to be only $15bn, having cancelled mostly short-term flex- ible capex. It has also said it will lower its oper- ating costs by $800mn this year, after previously targeting a $300mn reduction. These actions are necessary given that oil is now trading at less than $30 per barrel, CEO Patrick Pouyanne said.
The spread of the coronavirus (COVID-19) pandemic has wiped millions of barrels per day off global oil demand, causing benchmarks to slump to levels not seen since the early 2000s. In a particularly bearish forecast, Goldman Sachs recently predicted that Brent would average just $20 per barrel in the second quarter, as COV- ID-19’s impact is exacerbated by Russia, Saudi Arabia and other OPEC+ producers ramping up supply.
Responding to this unprecedented situation,
Total said it would also suspend its $2bn share buyback programme announced earlier, which had assumed an average oil price of $60 per bar- rel this year. The company bought back $550mn of its shares in January and February.
Total, which was one of the few oil majors to post stable profits in the final quarter of last year, believes it is in a better condition to face the new crisis than it was before the 2015-2016 market collapse.
In a presentation, it noted that its cash break- even point was under $25 per barrel in 2019, compared with over $100 per barrel in 2014. Its upstream expenditure was down to $5.4 per barrel of oil equivalent (boe), from $9.9, while its organic capex totalled $13.4bn, compared with $26.4bn.
Harder times are still to come, however, as low oil prices begin to feed into the indices of Total’s long-term LNG supply contracts. The French major’s refining business will also be stung by the collapse in fuel demand as a result of efforts to limit COVID-19 infection.
Shell
Shell also said on March 23 it had put its share buyback programme on hold, in order to gen- erate more free cash flow. The move comes after it announced in January it would downsize the next tranche of the programme to $1bn, from $2.75bn in each of the previous three quarters.
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w w w . N E W S B A S E . c o m Week 12 26•March•2020