Oil Majors Cash Flow Neutral at U.S. $50.00 per barrel.

Last week, we discussed that 70% of future development is commercially viable when Brent Crude hits $60.00 per barrel. http://www.fsmetals.com/about-us/newsletters/so-what-does-the-price-of-oil-have-to-be-to-turn-this-around

This week we got a bit of more good news. Because of the large CAPEX cuts seen across the industry (reduction of 49%, or U.S. $230 billion relative to 2014 levels), fifty-six major oil companies will be cash flow neutral if Brent crude has an average price of $50.00 per barrel, and a growing list will be cash flow neutral at $40.00 per barrel.

Interestingly, Wood MacKenzie also noted that the aggregative five year compound annual growth rate for production has fallen from 3.4% at peak in 2014, to 1.4% in the Second Quarter. If this trend continue, nearly 30 of the fifty-six oil companies surveyed will be producing less oil in 2020 than they are in 2015.

Ty’s Take. While it is overall bad news that projects are being trimmed, I think what we see above is overall good news – oil companies being profitable at lower prices per barrel benefit the industry by encouraging investment and new drilling at lower price points. But I think, once again, that it shows markets might be overcorrecting. Only time will tell. But I do think it means we will see, as we have seen, an uptick in activity and business as oil tops $50.00 per barrel. When that will happen is an entirely different question!

By: Ty Chapman

Five Star Metals, Inc.

Raising the Bar for Customer Service and Quality

Twitter: @FSM_TY

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