A strong Q4 for the International Energy Companies
Despite a significant drop in the oil price compared to Q3 2018 the International Energy Companies (IECs) all delivered solid results. There was Q4 revenue growth right across the board when compared to 2017. With the exception of ExxonMobil, who saw a decline in profits by 28%, the IECs all increased their Q4 profits. Part of this growth can be attributed to strong capital discipline, a key priority for all main IECs. Cash flow, another key business indicator, grew across the majority of majors in Q4. Divestment and share buyback also featured prominently in Q4 activities.
As you’ll see from the infographic full end of year results were also positive. There was a significant increase in overall revenue (+23%) and profits (+49%) of the International Energy Companies year-on-year driven by cost discipline.
A key indicator of the long term success of an oil company is reserves replacement. BP reported a reserves replacement ratio (RRR) for 2018, ‘including Rosneft, of 100%. Including acquisitions and disposals, BP’s RRR was 209%, primarily reflecting the BHP transaction.’ ExxonMobil ‘added 4.5 billion oil-equivalent barrels of proved oil and gas reserves in 2018, replacing 313 percent of the year’s production’. Chevron delivered a reserves replacement of 136%. While Shell’s reserves replacement was at 53%. Shell’s lower ratio was ‘due to divestments and the impact of Groningen’. Shell reported its reserves replacement ‘excluding Groningen was estimated at 98%’.
With many IECs reporting their strategies are working well we are likely to see them continue their approaches into 2019 and beyond. Capital discipline clearly delivers increased profitability, my concern that it doesn’t take the focus away from continued investment in exploration and the need to deliver greater reserves replacement.