Investment up despite falling profits
Oil and gas investment, particularly by supermajors in capital projects, during a time when public companies are showing weak quarterly reports is a positive sign for the petroleum industry and indicates a bullish outlook for the energy sector.
The root of this continued investment can observed in the last oil and gas bust and the dramatic reduction in investment that led to a tightened market and the fluctuating high oil and gas prices. The lingering memory of that mistake has renewed the commitment of big oil to investing in long-term oil and gas projects.
In an analysts’ conference call Chevron’s vice president and CFO, Patricia Yarrington, said, “We do have a strong capital program, that’s where our priority really is.” Chevron is backing up this position with a 2009 capital program of $23 billion, the same as 2008’s investment budget. This investment comes at the expense of shareholders in the short term, but will align the company for long-term success.
Phil Weiss, analyst with Argus Research, describes the current state of oil and gas supermajors, “If you look at spending they are certainly no counting on prices staying where they were at all. That is one of the reasons they build strong balance sheets – because when times get weak, you have more cash and borrowing capacity if need it to keep things intact until the environment gets better.”
Exxon Mobil was setting corporate earnings records last year, yet, for the first quarter of this year it reported being down to $4.6 billion compared to $10.9 billion the same period last year. Even with these reduced earnings the company said it increased capital investment in the first quarter by five percent and might even increase its planned $29 billion spending program for this year if the supermajor comes across a good investment project.
Sources for this post include the Wall Street Journal and journalgazette.net.
Published Wednesday, May 13th, 2009 at 7:39 am and filed under Industry News.