Majors Poised for 2022 Capex Hike

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The five Western majors are set to raise their capital spending by at least $12 billion next year, as higher oil and natural gas prices allow investment to return to more sustainable levels.

The capital expenditure hikes are not dependent on $80 oil and double-digit natural gas prices, nor are they a departure from investors’ ironclad demands for capital discipline. Instead, 2021 budgets were always meant to be a trough — assuming the depths of the pandemic-led downturn were in the rear-view mirror.

With that holding true, companies can comfortably move forward with higher spending in upstream oil and gas — and accelerated low-carbon ventures.

Majors' Capex Set to Rise
 2021 SpendingPreliminary 2022 PlansImplied Increase
BP*$13 billion$14 billion-$16 billionAt least $1 billion
Chevron$12 billion-$13 billion$15 billion-$17 billion (likely lower end)At least $2 billion
Exxon MobilLower end of $16 billion-$19 billion $20 billion-$25 billionAt least $4 billion
Royal Dutch Shell$20 billion$23 billion-$27 billionAt least $3 billion
TotalEnergies$13 billion$13 billion-$15 billion (likely top end)~$2 billion

Sleeping Giant

Exxon Mobil is staring down the largest spending increase among the Western majors.

The US-based firm was brought to its knees as oil prices collapsed to unheard-of levels in 2020, and capped reinvestment this year at its lowest level since 2007 to preserve its dividend and pay down rapidly rising debt.

Exxon management reiterated on Friday that capex this year will come in at the lower end of its $16 billion-$19 billion range, but the board should soon approve a $20 billion-$25 billion annual capex program from 2022 onward.

Those additional billions will help Exxon continue to reset its portfolio toward higher-margin, lower break-even projects.

Specifically, the major is ramping up investments next year at its Payara and Yellowtail developments offshore Guyana, the recently sanctioned Equinor-operated Bacalhau scheme offshore Brazil, the US Permian Basin and multiple refining and chemical expansions in the US, UK and Singapore.

Short-Cycle Spotlight

Exxon, Chevron and TotalEnergies all flagged plans to ramp up spending in short-cycle resources next year in comments to investors this week.

Doing so will give the trio a greater chance of tapping into the currently robust oil and gas price environment, adding to their cash flow windfall. But it also serves wider strategic goals.

For Total, focusing its incremental upstream capital on infill wells in places like Angola and Nigeria will allow it to meet still-robust oil demand in the immediate term while not deviating from its longer-term strategic plans to reduce oil output in favor of lower-carbon energy.

For Chevron and Exxon, steady growth in Permian shale is a cornerstone of their medium-term cash flow and returns targets.

Both US majors have assured that they will not run ahead of the market’s need for additional barrels, given still-robust Opec-plus spare capacity and pandemic-dented global demand. But the pair is clearly moving out of “maintenance mode” in the play.

Exxon and Chevron each set new company output records in the third quarter, with Exxon’s production jumping an eye-catching 100,000 barrels of oil equivalent per day in just three months. It had expected a 40,000 boe/d increase.

Strong productivity and the timing of well completions led to the robust uptick, but Exxon’s full-year output guidance implies a flattish performance for the remainder of the year. The company also reiterated that its plans to hit 700,000 boe/d still stood for 2025.

Share the Wealth

Unquestionably, the majors are collectively spending more in oil and gas as part of these capex hikes. But hydrocarbons will hardly get the entire pie.

Royal Dutch Shell, for instance, has been clear that its upstream reinvestment rates will remain at levels that cannot fully offset natural declines, particularly in oil. And BP has said its low-carbon energy and marketing ventures will determine where capex falls within its now-higher range, whereas hydrocarbon investment will remain flat.

Even Exxon and Chevron have new calls on capital to consider.

Exxon’s accelerated low-carbon plans announced Friday imply that its spending in the sector will rise from less than 3% of capex under previous plans to 11%, based on the midpoint of its spending range.

And while Chevron added $1 billion to its annual spending plans when it accelerated its low-carbon investment program last month, it is still increasing its spending in the sector from around 2% of capex to about 8%.

Both will focus these dollars on biofuels, carbon capture and storage, early-stage hydrogen and programs to reduce their operational emissions.

Capital Spending, Corporate Strategy , Majors, Earnings
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