Targeting new oilfields that can turn a profit even in the event that oil prices drop to about $30 per barrel, oil majors are reshaping their portfolios in light of the uncertain future of the sector. This is the third year of increased demand.

Despite recent strong earnings, investors have not retracted from oil stock investments. Saudi Aramco, the oil producer with the lowest cost in the world, has also joined the cost-cutting frenzy. In the past ten years, there has been a deeper and more regular movement to fields with favourable break-even values. It also represents the view of CEOs that the high prices of today might not persist.

“After three major oil price crashes in 15 years, there is wide acceptance that another one is likely to happen,” said Alex Beeker, director of corporate research at energy consultancy Wood Mackenzie.

Executives’ emphasis on purchasing less expensive crude oil and having the flexibility to modify output in response to price fluctuations is supported by this uncertainty and their demands for returns. In an indication of the industry’s aim to win back investor favour, Exxon Mobil and Chevron spent more money on shareholder dividends last year than on new oil projects.

As of January 30, the S&P 500 Index of the largest publicly traded firms in the United States included the energy sector as a weighting of just 4.4%, down from nearly three times that a decade earlier, according to S&PGlobal.

Recently, Exxon, Chevron, and Occidental Petroleum signed agreements totaling $125 billion to purchase businesses that will enable them to extract oil at a price per barrel of $25 to $30.

Shell and Equinor are seeking projects in Europe with breakeven prices of $25–30 a barrel, while TotalEnergies, a company based in France, wants to keep its production costs below $25.

Those low costs are around half the break-even level for oil projects a decade ago, and represent about 40% of today’s Brent global oil benchmark . However, they represent a wager that well production will continue to rise.

Every downturn cycle in activity results in efficiency benefits, according to Peter McNally, worldwide head of sector analysts at energy research company Third Bridge. “Rig count would still need to go up by two-thirds before you get any real oilfield inflation.”

Due to the need to save costs, businesses have reorganised their whole portfolios and focused their operations in a smaller number of areas.

Additionally, they have outsourced activities to nations with lower labour costs and cut jobs.

several expensive, legacy output from Canada, Africa, and several US regions is out. Together with TotalEnergies, Shell and Exxon sold their century-old California plant last year and are looking to withdraw from or reduce their footprint in Nigeria. BP sold its holdings in Canada, Alaska, and the North Sea, and Chevron withdrew from Indonesia.

Highly productive deepwater fields—where platforms become profitable once they are paid off—or shale—where a network of compact, easily accessible wells permits volume adjustments based on energy prices—are the typical sources of new production.

According to Exxon Chief Financial Officer Kathryn Mikells, “it’s good business” that higher profit and regular shareholder dividends be made possible amid the energy transition’s inevitable sector downturns.

High-return projects are necessary for oil companies to offer investors substantial returns on their investments, which came to $111 billion last year. More than half of the companies’ cash flow was consumed by those payouts.

Chevron CFO Pierre Breber stated, “We haven’t cut dividends since the Great Depression,” outlining the company’s strategy of investing in inexpensive oil, biofuels, and hydrogen to balance shareholder returns.

(Adapted from Nasdaq.com)