Higher crude prices are transforming the fortunes of international oil companies.
Instead of focusing on cost reductions and reining in capital investment, the industry’s latest puzzle could be figuring out just what to do with all the cash it’s collectively expected to generate.
Big oil has three obvious options: they can keep shareholders happy by returning more money to investors with buybacks and cash dividends instead of scrip; they can throw caution to the wind along with their balance sheet discipline by sanctioning the risky acquisition of rivals; or they can invest in capacity by signing off on new upstream projects. Despite lingering concerns over the sustainability of recovering prices, the third course of action could be the best option for both energy markets and shareholders in the long term.
Take BP for example. Europe’s second-largest producer is emerging from the financial shock caused by its Gulf of Mexico oil disaster in 2010. Fourth-quarter earnings released this week more than quadrupled year on year, boosted by a mixture of recovering oil prices and rising production. Despite a dip in the quarter, BP’s operating cash flows excluding the payments it still makes for the Macondo spill were up almost 37 per cent last year to $24.1 billion.
Investors probably care about this number more than any other because it shows an oil company’s ability to fund its investments and dividends without having to load up on extra debt. After four years of tightening their belts to be profitable with prices even below $50 per barrel, the world’s publicly traded majors such as BP are now in a position to leave the downturn behind.
With oil now trading just below $70 per barrel, BP like many of its rivals once again has options. If these levels are sustained through to 2019 the company can afford to maintain capital expenditure of up to $17bn and still generate enough money to pay cash dividends, which shareholders crave.
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Read more:
Cyprus' Calypso gasfield could resurrect country's energy sector
Oil rises as Opec commitment to cuts offsets US output gains
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Chief executive Bob Dudley was coy when last week when pressed by analysts about what the company plans to do with the increased free-cash flow it will be generating by the beginning of the next decade. For the time being the message from the industry is to maintain balance sheet discipline and reduce debt. But eventually shareholders will demand to see more growth to support long-term returns.
“2018 should be a year where operating cash flow can cover cash capex, full cash dividend and Macondo payments without disposal proceeds,” Rohan Murphy, an energy analyst at Allianz Global Investors, told Bloomberg.
Gearing up to buy a smaller rival would be risky, especially when the company is already carrying almost $38bn of net debt on its balance sheet. BP has also spent the past eight years batting away speculation that it could be a target for either a buyout or a break-up. Ploughing more of its cash back into new large-scale projects, which can generate higher returns for investors, may make more sense.
And there is evidence this process has already begun. S&P Global Platts reported last month that more delayed upstream oil and gas were approved last year. According to Rystad Energy, final investment decisions were taken on 18 major initiatives last year, double the figure for 2016. The trend is set to continue in 2018. Bain & Company is forecasting an increase of up to 20 per cent in capital expenditure by oil majors.
Despite growing concern over the potential for peak demand, there is evidence to suggest more capacity will be required soon. S&P Global Platts Analytics forecasts that oil production will have to continue increasing to meet rising demand for the next two decades. Global demand is expected to exceed 100 million barrels per day this year, according to S&P Global Platts' estimates.
Of course, big oil could use its spare cash to consolidate. Large-scale mergers and acquisitions in the sector have been limited since Shell pulled off its $52bn raid to buy natural-gas focused BG Group. Since then few deals have emerged in a sector dominated by the offshoots of the “Seven Sisters”. However, with the outlook for oil prices remaining uncertain since the rise of US shale, few chief executives among the majors have been willing to consider the idea of buying their rivals.
For the Middle East, an increase in spending by IOCs [international oil companies] could be a double-edged sword. The region’s major state-owned producers are currently limiting their output as part of Opec’s deal with non-member countries including Russia to reduce production by 1.8 million bpd. IOCs sanctioning a new swathe of projects could test the strength of their pact at a delicate time.
Andy Critchlow is head of energy news, Emea at S&P Global Platts
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
How tumultuous protests grew
- A fuel tax protest by French drivers appealed to wider anti-government sentiment
- Unlike previous French demonstrations there was no trade union or organised movement involved
- Demonstrators responded to online petitions and flooded squares to block traffic
- At its height there were almost 300,000 on the streets in support
- Named after the high visibility jackets that drivers must keep in cars
- Clashes soon turned violent as thousands fought with police at cordons
- An estimated two dozen people lost eyes and many others were admitted to hospital
RESULT
Arsenal 1 Chelsea 2
Arsenal: Aubameyang (13')
Chelsea: Jorginho (83'), Abraham (87')
Wonka
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Company%20Profile
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South Africa's T20 squad
Duminy (c), Behardien, Dala, De Villiers, Hendricks, Jonker, Klaasen (wkt), Miller, Morris, Paterson, Phangiso, Phehlukwayo, Shamsi, Smuts.
Tree of Hell
Starring: Raed Zeno, Hadi Awada, Dr Mohammad Abdalla
Director: Raed Zeno
Rating: 4/5
SPEC%20SHEET%3A%20APPLE%20M3%20MACBOOK%20AIR%20(13%22)
%3Cp%3E%3Cstrong%3EProcessor%3A%3C%2Fstrong%3E%20Apple%20M3%2C%208-core%20CPU%2C%20up%20to%2010-core%20CPU%2C%2016-core%20Neural%20Engine%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EDisplay%3A%3C%2Fstrong%3E%2013.6-inch%20Liquid%20Retina%2C%202560%20x%201664%2C%20224ppi%2C%20500%20nits%2C%20True%20Tone%2C%20wide%20colour%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EMemory%3A%3C%2Fstrong%3E%208%2F16%2F24GB%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStorage%3A%3C%2Fstrong%3E%20256%2F512GB%20%2F%201%2F2TB%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EI%2FO%3A%3C%2Fstrong%3E%20Thunderbolt%203%2FUSB-4%20(2)%2C%203.5mm%20audio%2C%20Touch%20ID%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EConnectivity%3A%3C%2Fstrong%3E%20Wi-Fi%206E%2C%20Bluetooth%205.3%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EBattery%3A%3C%2Fstrong%3E%2052.6Wh%20lithium-polymer%2C%20up%20to%2018%20hours%2C%20MagSafe%20charging%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ECamera%3A%3C%2Fstrong%3E%201080p%20FaceTime%20HD%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EVideo%3A%3C%2Fstrong%3E%20Support%20for%20Apple%20ProRes%2C%20HDR%20with%20Dolby%20Vision%2C%20HDR10%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EAudio%3A%3C%2Fstrong%3E%204-speaker%20system%2C%20wide%20stereo%2C%20support%20for%20Dolby%20Atmos%2C%20Spatial%20Audio%20and%20dynamic%20head%20tracking%20(with%20AirPods)%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EColours%3A%3C%2Fstrong%3E%20Midnight%2C%20silver%2C%20space%20grey%2C%20starlight%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EIn%20the%20box%3A%3C%2Fstrong%3E%20MacBook%20Air%2C%2030W%2F35W%20dual-port%2F70w%20power%20adapter%2C%20USB-C-to-MagSafe%20cable%2C%202%20Apple%20stickers%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EPrice%3A%3C%2Fstrong%3E%20From%20Dh4%2C599%3C%2Fp%3E%0A
UAE currency: the story behind the money in your pockets
Where can I submit a sample?
Volunteers can now submit DNA samples at a number of centres across Abu Dhabi. The programme is open to all ages.
Collection centres in Abu Dhabi include:
- Abu Dhabi National Exhibition Centre (ADNEC)
- Biogenix Labs in Masdar City
- Al Towayya in Al Ain
- NMC Royal Hospital in Khalifa City
- Bareen International Hospital
- NMC Specialty Hospital, Al Ain
- NMC Royal Medical Centre - Abu Dhabi
- NMC Royal Women’s Hospital.
Fifa%20World%20Cup%20Qatar%202022%20
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Pathaan
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Company%20profile
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Section 375
Cast: Akshaye Khanna, Richa Chadha, Meera Chopra & Rahul Bhat
Director: Ajay Bahl
Producers: Kumar Mangat Pathak, Abhishek Pathak & SCIPL
Rating: 3.5/5
Joker: Folie a Deux
Starring: Joaquin Phoenix, Lady Gaga, Brendan Gleeson
Director: Todd Phillips
Rating: 2/5
Name: Peter Dicce
Title: Assistant dean of students and director of athletics
Favourite sport: soccer
Favourite team: Bayern Munich
Favourite player: Franz Beckenbauer
Favourite activity in Abu Dhabi: scuba diving in the Northern Emirates
The specs
Engine: Dual 180kW and 300kW front and rear motors
Power: 480kW
Torque: 850Nm
Transmission: Single-speed automatic
Price: From Dh359,900 ($98,000)
On sale: Now
Armies of Sand
By Kenneth Pollack (Oxford University Press)
BEACH SOCCER WORLD CUP
Group A
Paraguay
Japan
Switzerland
USA
Group B
Uruguay
Mexico
Italy
Tahiti
Group C
Belarus
UAE
Senegal
Russia
Group D
Brazil
Oman
Portugal
Nigeria
ASHES FIXTURES
1st Test: Brisbane, Nov 23-27
2nd Test: Adelaide, Dec 2-6
3rd Test: Perth, Dec 14-18
4th Test: Melbourne, Dec 26-30
5th Test: Sydney, Jan 4-8
The specs
Engine: Long-range single or dual motor with 200kW or 400kW battery
Transmission: Single-speed automatic
Max touring range: 620km / 590km
Price: From Dh250,000 (estimated)
APPLE IPAD MINI (A17 PRO)
Display: 21cm Liquid Retina Display, 2266 x 1488, 326ppi, 500 nits
Chip: Apple A17 Pro, 6-core CPU, 5-core GPU, 16-core Neural Engine
Storage: 128/256/512GB
Main camera: 12MP wide, f/1.8, digital zoom up to 5x, Smart HDR 4
Front camera: 12MP ultra-wide, f/2.4, Smart HDR 4, full-HD @ 25/30/60fps
Biometrics: Touch ID, Face ID
Colours: Blue, purple, space grey, starlight
In the box: iPad mini, USB-C cable, 20W USB-C power adapter
Price: From Dh2,099
The biog
Birthday: February 22, 1956
Born: Madahha near Chittagong, Bangladesh
Arrived in UAE: 1978
Exercise: At least one hour a day on the Corniche, from 5.30-6am and 7pm to 8pm.
Favourite place in Abu Dhabi? “Everywhere. Wherever you go, you can relax.”
The specs
Engine: 77.4kW all-wheel-drive dual motor
Power: 320bhp
Torque: 605Nm
Transmission: Single-speed automatic
Price: From Dh219,000
On sale: Now
The specs
Engine: 2-litre or 3-litre 4Motion all-wheel-drive Power: 250Nm (2-litre); 340 (3-litre) Torque: 450Nm Transmission: 8-speed automatic Starting price: From Dh212,000 On sale: Now
The specs
Engine: 3.9-litre twin-turbo V8
Power: 620hp from 5,750-7,500rpm
Torque: 760Nm from 3,000-5,750rpm
Transmission: Eight-speed dual-clutch auto
On sale: Now
Price: From Dh1.05 million ($286,000)
Children who witnessed blood bath want to help others
Aged just 11, Khulood Al Najjar’s daughter, Nora, bravely attempted to fight off Philip Spence. Her finger was injured when she put her hand in between the claw hammer and her mother’s head.
As a vital witness, she was forced to relive the ordeal by police who needed to identify the attacker and ensure he was found guilty.
Now aged 16, Nora has decided she wants to dedicate her career to helping other victims of crime.
“It was very horrible for her. She saw her mum, dying, just next to her eyes. But now she just wants to go forward,” said Khulood, speaking about how her eldest daughter was dealing with the trauma of the incident five years ago. “She is saying, 'mama, I want to be a lawyer, I want to help people achieve justice'.”
Khulood’s youngest daughter, Fatima, was seven at the time of the attack and attempted to help paramedics responding to the incident.
“Now she wants to be a maxillofacial doctor,” Khulood said. “She said to me ‘it is because a maxillofacial doctor returned your face, mama’. Now she wants to help people see themselves in the mirror again.”
Khulood’s son, Saeed, was nine in 2014 and slept through the attack. While he did not witness the trauma, this made it more difficult for him to understand what had happened. He has ambitions to become an engineer.