AOG26- Price of oil predictions revisited

Price of oil revisited.

Today, we look back at our predictions of the price of oil in 2017, episode 3. We also discuss the annual report of major operators. Finally, we take a look at the energy outlook for the future, 2040 and beyond. This episode is dry to listen to because it contains a lot of numbers and data but is very informative and insightful. Below are show notes mentioned in the episode:

https://chevroncorp.gcs-web.com/static-files/a99aabf1-e9cf-46e3-853f-f3eb8e4434b0

Mike Wirth: As I said, there are seven and a half billion people on the planet. A billion of those people don’t have electricity today. Hard to believe, but it’s true.  Nearly three billion of those people still use biomass or animal dung for indoor heating and cooking.  By 2040, there will be nine billion people on the planet.  The one and a half billion that are added are generally going to be in developing countries. There is a need for more energy around the world of all types, and there’s room for all types. We have core competencies in investing in the business that we know. We also invest in renewables. We’ve invested in wind, in solar, in biofuels and intend to continue to learn in those areas. But just as Jay said, deep-water has got to compete with other things within our portfolio for investment, as do renewables.

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Mike Wirth: There’s a bit of a hypothetical construct there, Paul, and in a lower-price environment for a short period of time, I don’t think much changes. We’ve laid out the material we’ve provided today assuming a $60 flat world, which is in-line with most things I’ve read that are written by people that cover our industry and what we believe is in the ballpark of what people would expect. If we were to move into a lower range than that we thought was sustainable, I think you would  see some adjustments [to our capital program] because we have the flexibility to make adjustments, but we see still have a lot of investments that are economic at $50 or at $45 or at $40. And so, it wouldn’t be a dramatic shutdown of spending because we still have good returns in the best of our portfolio at those prices.  The intent here really is to lay out a ratable plan not to be swung by the price cycle, which is hard to predict in our industry other than you know we’re going to see higher prices than today and also lower prices than today. I’ll touch on the balance sheet and share repurchases and then see if Pat wants to add anything.  We tried to be very clear that as we’ve resumed the share repurchase program, we don’t intend to swing that with the price cycle, and we intend to see it through in any reasonable price environment whether it’s a higher or a lower price environment that we’re in today.

Pat Yarrington (Vice President and Chief Financial Officer, Chevron Corporation): I don’t think I have much to add. When we restarted the program, we took a look at a number of pricing scenarios and tried to peg a rate of annual repurchases that we felt could be sustained over a long period of time. And certainly, having balance sheet strength allows us to have comfort in that through, any reasonable price environment.

Paul Sankey: Yes, that’s reasonable. I think the $60, everyone expects it, so it’s probably not going to happen, and the risk may well be to the downside.  What you seem to be saying is that to keep doing the buyback through the downturn, the obvious conclusion is that you’re going to flex the balance sheet.

https://reports.shell.com/annual-report/2017/strategic-report.php

https://www.bp.