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Large oil companies are holding back on drilling



Thanks to rising crude oil prices, the largest oil companies in the world are lost in money. But few, if any, go on a shopping spree, even if the prospect of a global oil shortage threatens.

Exxon, Chevron, Shell and Total earnings were $ 16.8 billion, the highest level since 2014. Exxon's net income increased 16% to $ 4.7 billion, but production fell 6% to below 4% Million barrels a day. Chevron's profits increased 36% to $ 3.6 billion, while production increased 6.5% to 2.9 million barrels a day.

Despite a 50% price hike since last year, budgets hit the biggest oil-and-gas industry According to consulting firm Wood Mackenzie, companies are only up 7%.

Large listed oil companies are moving cautiously because they are being pressured by investors after investing heavily in higher prices over the last decade to earn little profit.

"The newly found religion and confidence in the sector are, to say the least, fragile," said Shell Chief Executive

Ben van Beurden.

"We have to show for a bit longer that we actually mean what we say in terms of capital discipline."

By contrast, smaller US shale producers ̵

1; especially those financed by private equity – have used the opportunity to increase their profits and gain market share

Two years ago, almost 64% of production was accounted for by the top 30 US Companies. This percentage has dropped to 60% this year, according to consulting firm Rystad Energy.

"Large companies are still cutting coupons to show that they can live with their funds," said Adam Flikerski, Managing Partner at BlackGold Capital Management LP Asset Manager, which specializes in oil and gas lending. "Like technology companies, smaller companies are still rewarded for growth."

The suspicious reaction of the world's biggest producers stems from the fact that a global oil spill that has hung over the industry for the past four years seems to be finally disappearing. Without increased spending on new oil production, the International Energy Agency warns that the world could switch from oversupply to supply shortages by 2020.

A lack of investment "poses potential problems for the future," according to the Paris-based government agency said last month.

Yet, many investors in publicly traded oil and gas producers are urging executives to seed another price decline Their apathy over the oil rally has been shown.

While the price of Brent crude, the international oil benchmark, has risen 11% this year, the leading barometer of energy stocks is the MSCI World Energy Index, up only 4%., A number of companies have performed even worse, Exxon has declined 3.9%.

The pace of share buybacks has been a key factor in performance.

ConocoPhillips

The stock gained 3% on Thursday after repurchasing around $ 500 million in shares as quarterly earnings rose 52% to $ 888 million.

Exxon lost 3.4% on Friday after failing to re-launch its long-standing program for repurchasing shares. Although the company achieved its highest cash flow since 2014, it fell short of analysts' expectations for the second consecutive quarter. Profit increased 16% to $ 4.65 billion compared to the first three months of last year, but output fell after an earthquake in Papua New Guinea wiped out natural gas in the country. Sales increased 16% to $ 68 billion.

Chevron's stock gained 1.8% on Friday after the company's earnings exceeded expectations. Sales rose 13% to approximately $ 38 billion.

Shell's British equities fell 0.7% on Thursday after the company missed out on cash flow expectations and made it less clear when it would buy back $ 25 billion worth of shares as quarterly earnings jumped two-thirds Up to Nearly $ 6 Billion

Chevron's share rose 1.8% on Friday after the company announced that its first-quarter earnings were $ 3.6 billion, an increase of 36% compared to the previous year.

France

total
SA

announced on Thursday a dividend increase of 3.2%. managing Director

Patrick Pouyanne

The company will use the surplus cash it spends on oil at over $ 70 a barrel to reward shareholders with higher dividends and share buybacks.

"Some of you may be worried about the financial discipline, but I can tell you that we retain it. Remember the discipline," Pouyanne told the analysts.

Sanford C. Bernstein expects the world's largest oil companies to record record cash flows this year.

The spending restrictions are not so restrictive The largest companies completely avoid new developments.

BP

The PLC, reporting profits next week, approved several new projects this month, including the second project in a $ 6 billion natural gas production in India.

Earlier this week, Shell announced plans for a new deepwater project in the Gulf of Mexico. Exxon may make a final investment decision later this year on a new plant to produce polypropylene, a widely used plastic.

One reason for caution among larger companies is that some analysts, investors and executives still do not believe that crude oil prices will rise. They will remain elevated until the end of the year.

"There is a potential weakness in oil prices," said Tom Ellacott, senior vice president of corporate research at Wood Mackenzie. "It's still a pretty unsafe environment."

Smaller US manufacturers are less cautious, as many still have business models that resemble startups. They must invest in new wells to prove the viability of new prospects.

These companies are a major reason why US oil production is expected to reach 11 million barrels per day by the end of the year, surpassing Saudi Arabia's output.

In February, non-prime US crude oil companies accounted for nearly half of the permits approved for new drilling, according to data and analytics company DrillingInfo. In the past six months, these operators accounted for approximately 42% of the permits. Permits are usually a useful barometer for future drilling activities.

Many of these companies will be affected by labor shortages and trucking, as well as pipeline bottlenecks in the Perm basin in West Texas and New Mexico, the heart of US drilling activity. These challenges could cut production by about 400,000 barrels a day, but production will continue to grow as many companies have secured supplies and contracts to meet their goals, said Artem Abramov, vice president of analysis at analytics firm Rystad

I have a whole new generation of small, private actors with very ambitious growth plans in the Permian Basin, "he said." These plans are continuing. "

Write to Bradley Olson at Bradley.Olson@wsj .com and Sarah Kent to sarah.kent@wsj.com


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