Berry’s Dr. Widdershoven extensive interview with leading Dutch financial newspaper FD on role change for NOCs and IOCs
Berry’s Dr. Widdershoven was interviewed this morning with the leading Dutch financial newspaper FD on the future role changes for NOCs and IOCs post oil crisis and energy transition (with English translation below):
Dr. Widdershoven is a highly respected analyst in his home country and is the ‘go-to-man’ for all things energy related.
Oil multinationals stuck between energy transition and oil crisis
The current oil market crisis is hitting major oil and gas multinationals hard.
They will lose even more power at the expense of large oil state companies.
Their sharply declining stock prices make oil producers and supply companies vulnerable to takeovers.
Shell, BP and ExxonMobil have experienced and endured oil crises more often. However, the current crisis, in which demand for oil, gas and fuels has collapsed by a third, while production has continued to run at full speed, is of a completely different order and will weaken the position of ‘Big Oil’, experts expect . An opportunity for oil companies owned by national governments, such as Saudi Aramco, Russia’s Rosneft or China’s Petrochina.
“This is not a crisis as we are used to,” says oil and gas analyst Jilles van den Beukel. “Negative prices, production of oil that is really being shut down, no we have never seen that before.”
More resilient, but less powerful
Shell, BP, ExxonMobil and other major oil multinationals respond as they always do: cut costs and cut investments. And if that is not enough to keep their heads above water even at low oil prices, they will divest business units.
It has made them more agile and resilient, but it has also weakened their position of power. “The impact of Shell, ExxonMobil and other major oil companies has been declining for years,” said Cyril Widdershoven, energy analyst and Middle East expert.
More dependent on Opec countries
Widdershoven expects large state-owned companies in the Middle East to seize the current crisis to strengthen their position in the world. “That is the dream of the Aramco’s and Adnocs (Abu Dhabi’s state oil company, ed.) Of this world.”
He and Van den Beukel point to the declining oil and gas reserves at companies such as Shell. “The market share of the state-owned companies will only increase,” says Widdershoven. ‘We now think that we depend on the Middle East and Opec for oil, but that is not the case at all. But we will be in the coming years. ”
Vulnerable to acquisitions
Low stock prices, negative returns and pressure on the dividend make oil companies vulnerable to takeovers, according to Widdershoven. “I’m not saying that Aramco is going to buy Shell. That will also be difficult from a geopolitical and competitive point of view, but smaller oil companies or suppliers will not be crowded. ?
The latter have become increasingly important. Without companies already Halliburton, SBM Offshore or Schlumberger, the large oil multinationals cannot do anything, according to Widdershoven. They’ve outsourced a lot to those players in the past.
The expert expects a major industry shakeout among smaller oil and supply companies and the US shale sector. These will eventually come into the hands of companies with a lot of cash and the space to invest in oil and gas. These are mainly the national oil companies, Widdershoven thinks. “Many analysts think that the current crisis will support or accelerate the transition to renewable energy, but it may well be a transition from listed companies to state-owned companies, with the future of oil coming into the hands of a select group of very wealthy oil companies.”
At present, the major oil companies still have the advantage of being seen as ‘too big to fail’, because many pension funds and institutional investors invest in them for dividends. According to Widdershoven, it also explains why, among other things, Shell continues to cling so tightly to its dividend.
The five largest listed oil and gas companies paid a total of $ 71.2 billion to shareholders in 2019 in the form of dividends and share buybacks, while together they generated only $ 61 billion in free cash flow, according to an inventory by the Institute for Energy Economics and Financial Analysis.
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“If they don’t, the future of the company is at stake. If you no longer receive a dividend as an investor, why would you still invest in Shell? If you get in now, you may still expect a price return. But if you have been in it as a pension fund since 2003, you will be gone if Shell reduces or scrapes the dividend. ?
At the same time, companies such as Shell and BP are under pressure from shareholders, governments and NGOs to become greener. For the time being, the returns in the renewable energy sector are much lower than in the extraction of oil and gas, while oil and gas are likely to remain needed for decades to come. That makes it difficult for oil companies to quickly go through that transition.
‘We will remain dependent on oil and gas for a very long time. You have to be careful not to throw your old shoes away before you have new ones, ‘says Van den Beukel. Oil and gas is not only needed for energy, but also to make other products out of it, such as medicines, plastics and clothing. ‘You don’t make an Nike shoe out of an electron,’ says Widdershoven.