Have Shell and BP Signalled an Oil Recovery?

For years, the oil industry has been in a state of volatility. Now, analysts are predicting that a recovery could be on the horizon. British group BP has significantly raised its medium-term growth forecasts, while its Anglo-Dutch rival has given the green light for its high-profile Gulf project.

BP raises growth forecasts

According to BP chief executive Bob Dudley, the company is now enjoying “excellent growth prospects.” In response to recovering oil prices and falling overheads, he’s raised projections for cash flow over the next five years. Not only is the upgrade a sign of a market recovery, but the increased forecast also implies that BP has turned a corner in its efforts to recover from the catastrophically expensive Deepwater Horizon oil spill in 2010.

BP has also made a handful of acquisitions over the past few months, including the purchase of assets in Abu Dhabi, Egypt, Mauritania and Senegal. It’s part of the company’s plan to rebuild reserves, after selling off US$75 billion worth of assets since 2013. As a result, BP expects production to grow by an average annual rate of 5% between 2016 and 2021. The outlook is bright, with six new fields already in operation, seven more due in 2017 and an additional nine currently under construction.

Shells hits play on Kaikias

Meanwhile, Royal Dutch Shell has commissioned its first offshore project in almost two years. Set in the Gulf of Mexico, the Kaikias deepwater oil project could be wildly lucrative. Analysts have interpreted the investment as a sign of returning confidence for the giant, as well as the oil and gas industry as a whole.

In an optimistic move, Shell has also revealed that it aims to generate pre-tax free cash flow of US$13-US$14 billion from upstream exploration and production in 2021, based on oil prices of US$55 a barrel. This is significantly higher than its previous target of US$7-US$8 billion, based on prices of US$50 a barrel in 2020.

Giants proceed with caution

For the past few years, the mood among global oil and gas groups has been dark. However after crude prices partially recovered to around US$55 a barrel, giants like Shell and BP have started to flex their muscles. That said, both companies have confirmed that they’re proceeding with caution. Dudley has assured investors that BP will keep costs under control, and cap annual capital spending at a modest US$15- US$17 billion until 2021. According to the CEO, this will ensure the company remains “competitive in all price environments.”

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