Oil & Gas Majors Step Up Capital Spending

In Europe as in the U.S., oil & gas majors are increasing capex, expanding their upstream capex budget, and focusing on LNG projects

Stephen Simko, CFA 12 December, 2011 | 2:28PM
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Over the past week, both Chevron (CVX) and ConocoPhillips (COP) released detailed 2012 capital spending plans. While peers ExxonMobil (XOM) and the European major integrated firms have yet to release their 2012 plans, we expect the same themes found in Chevron and ConocoPhillips' plans will hold across the sector. Most prominent is the overall step up in spending levels from 2011. While some of the reasons for the increased spending are company specific, we expect those firms who have yet to announce their plans will see similar increases. Also noticeable is the increasing amount of spending directed towards upstream activities. This comes as little surprise given that integrated firms not only typically earn higher returns in upstream projects, but they have also actively reduced their downstream asset base over the past few years. Finally, while the amount will vary, many of the firms' upstream budgets, with the exception of BP's (BP.), will likely include significant LNG spending. This also comes as little surprise given the amount and size of LNG projects currently in development, particularly in Australia.

Though detailed plans on 2012 spending have yet to be provided, Royal Dutch Shell (RDSB) and Total (FP) have given broad outlines of their spending plans for the next couple years (BP will publish its 2012 budget at the beginning of next year). Without question, the trends we see in Europe echo those in the U.S.: capital spending is increasing, upstream is making up larger portions of the capital spending budget (85%-plus at each company), and Shell and Total have major LNG projects in the works. Specifically for Total, we expect its capital expenditure budget to increase to an average of $23 billion for 2012-14 after spending about $20 billion in 2011.

Click on the following company name(s) to read the full Morningstar Research Report for that stock, including fair value estimate, uncertainty rating, and financial health assessment: BP; Royal Dutch Shell; Total. Morningstar Research is available to Premium subscribers--find out more here.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BP PLC466.25 GBX-0.01Rating

About Author

Stephen Simko, CFA  is a senior stock analyst at Morningstar.

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