U.S. supermajors outpace European rivals in E&P capital spending

U.S. supermajors have ramped up their oil and gas upstream capex over the past two years, while their European counterparts have tended to keep this spending flat.

Chevron and ExxonMobil saw a notable jump in global E&P spend between the first half and the second half of 2022, and have maintained high levels of spending ever since, Evaluate Energy data shows.

Both firms have recently made sizeable stock-based acquisitions in addition to their increased spending, as they look to boost their global gas production and meet expected growth in natural gas demand from emerging economies.

“A serious approach to the transition should focus on moving the world from high-carbon to low-carbon energy,” said ExxonMobil CEO Darren Woods on the firm’s second quarter results call. “Our strategy reflects this reality.”

ExxonMobil has now closed its $64.5-billion acquisition of Pioneer Natural Resources. Meanwhile, Chevron is awaiting an arbitration hearing over its $60-billion merger with Hess, following the completion of the $7.6 billion acquisition of PDC Energy in the DJ Basin in August 2023. For more on how these and other major U.S. producers are set to grow via M&A activity, click here.

ExxonMobil’s Q2 production was over 4.3 million barrels of oil-equivalent per day (boe/d), an increase of 21% compared to Q2 2023. The production increase is only partially attributable to the Pioneer acquisition, which closed in May.

The firm has also raised its capex guidance to $28 billion for the year, reaching the top limit of its projected range, as ExxonMobil sees an increasing number of “attractive opportunities…to invest in,” said Woods.

While Chevron did not update its capex guidance, the firm said production in 2024 is likely to be 4% to 7% higher than the 3.1 million boe/d it produced in 2023 and expects it to rise towards 4 million boe/d by 2027.

ConocoPhillips saw a spike in upstream capex in 2021, when it closed $23 billion in acquisitions of Concho Resources and Shell’s Permian Assets. Since then, it has not increased upstream spending at the same rate as Chevron or ExxonMobil. It should see another jump, however, once its planned acquisition of Marathon Oil closes, likely later this year.

ConocoPhillips expects a 3% year-on-year growth in production this year to 1.93-1.94 million boe/d.

European Supermajors

By contrast, BP and Shell have maintained more consistent levels of spending on upstream oil and gas at levels closer to those seen in 2021, as well as lower levels of production.

Neither have made upstream acquisitions at the scale of Chevron or ExxonMobil, and capex on existing assets has remained steady.

For the past three years, as CEO Murray Auchincloss reiterated in BP’s second quarter results, BP’s strategy has been to transform into an integrated energy company (IEC) built on three pillars — resilient hydrocarbons, mobility and low carbon energy.

BP has a target to reach an EBITDA of $30-32 billion (from $25 billion in 2023) from its global oil and gas business by 2025, and to sustain that level of EBITDA to 2030, while maintaining flat levels of production (2.3 million boe/d) and capex.

Source: BP Investor Presentation, October 2023 – Available via Evaluate Energy Documents

It will do this by focusing heavily on its net income per barrel of production, divesting low margin assets and ensuring only high margin assets are developed — while increasingly shifting its focus from oil to gas.

The firm expects to grow LNG supply to 30 mtpa in 2030 from 25 million tonnes per annum (mtpa) in 2025, through equity options in the Browse project in Australia, Calypso in Trinidad & Tobago, and potential future phases of LNG projects in Mauritania, Senegal, Oman, the UAE and Indonesia.

Meanwhile Shell is sticking by its Powering Progress strategy to become an IEC and has a similar plan to focus on value over volume.

The firm has divested assets to reduce its oil production to 1.4 million boe/d and will maintain that level for the rest of the decade, while slightly increasing gas production to an as-yet unspecified level.  Shell is targeting capex spending of about $13 billion a year in its integrated gas and upstream business over the course of this decade.

Shell sees increased utilisation of existing LNG plants as the best way to grow sales volumes. It is investing around $2 billion every year between 2023 and 2025 in projects that increase the supply of natural gas to its existing LNG facilities.

Despite these more restrained strategies, last year both Shell and BP reversed course to cut production more sharply by 2030.

TotalEnergies has ramped up its investment in upstream oil and gas at a faster pace than Shell or BP. The firm’s strategy is to “responsibly grow” its oil and gas production by 2% to 3% per year, predominantly from LNG.

Bucking the trend

IEA data for 2023 shows that there is a falling long-term trend in capex spend from the largest global oil and gas companies since 2015, shifting their focus to paying dividends and buying back shares instead.

Mike Coffin, Head of oil, gas and mining at Carbon Tracker, said while there are some companies increasing capex in absolute terms, these firms are risking stranded assets.

“Long-cycle investments, including capital-intensive LNG, risk failing to deliver expect returns as the transition unfolds,” he told Evaluate Energy.

But supermajors are betting that LNG demand will remain resilient in the medium-term, whatever the pace of global energy transition. BP’s Energy Outlook, published last month, sees a slight rise in 2040 LNG imports from current levels, even under a scenario consistent with reaching global net zero emissions by 2050.

Source: BP Energy Outlook, 2024 – Available via Evaluate Energy Documents

Shell’s LNG Outlook, published earlier this year, does not see global natural gas demand peaking until after 2040 under its central scenario.

Source: Shell LNG Outlook 2024 – Available via Evaluate Energy Documents