"Oil majors under pressure to curb spending": FT.

FT: “For years, the global oil majors have been like Formula One cars, racing flat-out to grow. Investors now want them to take their foot off the pedal. Pressure has been building on them to curb their vast capital spending programmes and return more cash to shareholders. Those that do have seen their stock price rise.” “Experts say the issue of capital discipline has become pivotal to any assessment of the sector. “The critical debate among equity investors is: what is the right balance these companies should be striking between retaining cash to reinvest in the business and distributing it to shareholders?” says Martijn Rats of Morgan Stanley.
For many, the right balance at a time of high industry costs and a stagnating oil price is to stop splurging on expensive projects and splurge instead on higher dividends and share buybacks.
The largest western oil companies, ExxonMobil, Chevron and Royal Dutch Shell, have so far resisted such reasoning. Simon Henry, Shell’s chief financial officer, said on a call to reporters last week that it would be “too easy to get cheap headlines and a cheap boost in the stock price just by cutting investment”. That was, he said, in “nobody’s long-term interest”.
But even the big three are now signalling that they expect their capital expenditure (capex) to level off in the next few years. And they are likely to come under continued pressure to bring it down.
Others have already been much more responsive to market demands for a change in priorities. Total, the French energy group, said in July that its capex will peak this year and start falling in 2014 – a move that has helped it become the best-performing stock among the supermajors this year.
….The majors are not the only ones that are spending lavishly. A study by EY of 75 oil companies found their global capex increased 13 per cent in 2012, to a mind-boggling $541bn.
Yet the boost in spending is not being matched by improved company finances. According to EY, their combined profits fell 16 per cent between 2011 and 2012 while revenues in their upstream, or exploration and production, divisions were flat.
….However, Fadel Gheit, an analyst at Oppenheimer, is sceptical that the big oil groups will in fact exercise restraint. “I will believe it when I see it,” he says. “In my view, oil companies will continue to spend more than they expected because their projects are more expensive and take more time.”