12 October 2018, News Wires — Energy companies and investors are focused on profits and reluctant to boost spending even after crude prices surged to four-year highs, a senior Goldman Sachs banker said on Thursday.
Rattled by the recent downturn in the sector and long-term concerns over oil demand and the switch to renewables, Big Oil is facing an unprecedented challenge.
“We’re firmly through that survival phase and the better capitalized players are now positioned to do well on the other side of it,” Andrew Fry, global head of energy at Goldman said at the Oil & Money conference in London.
Companies typically seek to increase spending as they emerge from a downturn in order to capture low drilling costs and an expected supply shortage.
But this time round, the barriers for investments are high, with investors seeking returns of as much as 15 to 20 percent from multi-billion dollar oil and gas projects, Fry said.
“In the near term the focus is on returns as opposed to growth for the sake of growth,” he said.
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As a result, companies are currently focusing on buying back shares and paying dividends to investors with the excess cash they generate.
“For the first time since the downturn, the oil companies now have their balance sheets in order. They are all starting to think about growth but it is very conservative,” James Janoskey, global co-head of oil and gas at JPMorgan, said.
“When we came out of downturns in the past, we didn’t have energy transition issues and there probably wasn’t that much pressure from investors.”
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