Kibsgaard’s presentation included some telling statistics. Over the past decade, capital spending on exploration and production has grown by about 400 percent; global oil output, on the other hand, has increased by 15 percent. In aggregate, upstream operators have invested an average of $600 billion annually over the past three years, but the only net increase in production has come from North American unconventional fields such as the Bakken and Eagle Ford Shale.
That is, outside of North America, global oil production has been flat to slightly down despite the industry’s heavy investment in exploration and production.
Against this backdrop, it’s no wonder that energy heavyweights such as Royal Dutch Shell (LSE: RDSA, RDSB; NYSE: RDS A, RDS B) and Model Portfolio holding Total (Paris: FP, NYSE: TOT) have slashed their capital expenditures, shifting their focus from growing production at any cost to delivering solid returns.
We’ve written a great deal about this trend of late, primarily in reference to the offshore contract drillers and former Portfolio holdings SeaDrill (NYSE: SDRL) and Ensco (NYSE: ESV). Major oil and gas companies’ diminished appetite for spending exploration, coupled with an influx of speculatively ordered rigs, has weighed on day-rates for floating rigs and should depress returns in the shallow- and mid-water markets.
We cashed out of SeaDrill in fall 2013, around the time when the stock hit an all-time high.
Although the stock’s recent swoon has priced in the effects of an emerging oversupply in the market for floating rigs, weakening day-rates for jack-up rigs that operate in shallower waters could send the share price even lower. (See Knowing the Drill and Why SeaDrill Still Rates a Sell.)
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on May. 26, 2021
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