21st Mar 2022 11:37
(Alliance News) - While Saudi Arabian Oil Co unveiled spending plans that were greater than analysts predicted, its western counterparts are not quite digging into their coffers to the same extent, AJ Bell analyst Russ Mould commented on Monday.
The more cautious spending plans come despite oil prices surging above USD100 a barrel in recent weeks.
Mould commented: "Saudi Aramco is increasing its capital investment budget for 2022 to around USD45 billion, compared to analysts' consensus expectations of around USD36 billion, as it recycles higher profits into efforts to increase oil output, but its Western oil major equivalents are being so much more careful."
Saudi Aramco, which reported annual results on Sunday, earmarked USD40 billion to USD50 billion worth of capital expenditure in 2022. It also said there is "further growth expected until around the middle of the decade".
Capex in 2021 was USD31.9 billion, which itself was an 18% hike from 2020.
Western counterparts such as BP PLC, Shell PLC, TotalEnergies SE, Exxon Mobil Corp and Chevron Corp are being more frugal, AJ Bell's Mould noted.
"A big lift in spend is planned for 2022, but none of the seven majors have increased their budgets in any great way and, in dollar terms, total investment this year is currently set to come in at less than half of 2013's peak. Spending as a percentage of sales is only set to reach 6.6% this year, a figure which only just exceeds the lows of 2005-06," the analyst explained.
Spending as a percentage of sales was 6.3% in 2021, AJ Bell noted, so the 6.6% predicted for 2022 is just a fraction higher. In 2023, capex as a percentage of sales is forecast to rise to 7.4%, AJ Bell noted, citing consensus forecasts.
Western oil companies face a wealth of pressures. Mould noted they still have "COP26 ringing in their ears", as well as calls from investors to show a bit more financial discipline.
Mould added: "The spending splurge of 2011-15 set the stage for oil price weakness in 2018-19 (well before Covid).
"Government reluctance to permit new drilling work or pipelines in certain jurisdictions are an added complication, as are threats of windfall taxes on profits and banks' and insurers' apparent reluctance to provide their services when it comes to the development of major new fields."
Saudi Aramco, meanwhile, faces less pressure on these fronts, Mould added.
Aramco's net income surged to USD110.0 billion in 2021, from USD49.0 billion in 2020.
The analyst added that an increase in spending from oil and gas giants could put the spotlight on oil equipment and services firms, and even industry sub-suppliers, so those that focus on providing specific products to the wider oil and gas industry.
Among London listed equipment and services firms are John Wood Group PLC, Weir Group PLC, Hunting PLC and Lamprell PLC.
Mould added: "The UK is blessed with expertise in this industry and the share prices of Hunting, Wood Group and Weir are moving higher, even though Lamprell is still mired near all-time lows thanks to concerns over the group's financing arrangements, despite last year's capital raising and new working capital facility."
Shares in sub-suppliers have suffered a bit more, however. These include AIM listings Pressure Technologies PLC, an engineering firm, and well head maker Plexus Holdings PLC.
Mould explained: "Both AIM-quoted firms trade at or close to all-time lows but both could benefit if one result of a drive toward greater energy security is governments permit and actively encourage more investment in hydrocarbon output, as concerns over the cost of living outweigh those concerning the environment, at least in the near term."
By Eric Cunha; [email protected]
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