Oil Majors Need A New Model To Deal With $60 Oil, Report Says #corporatestrategy #businesstrends #oilprices #commoditytrends

By 29th June 2015 Industry News No Comments

A report published by Morgan Stanley and The Boston Consulting Group says that the world’s top oil companies should change their business model to increase shareholder returns amid the lower price environment, Bloomberg reported.

According to the report, “The days of Big Oil are by no means over, but today’s environment requires a change to the model.” Bloomberg cites the authors of the report as saying that the prize on offer is a 50% gain for their share prices.

The report comes amid the questioning by investors of how oil majors such as Shell, BP, and ExxonMobil will deal with the fall in oil prices to approximately $60/bbl from year $100 last year. Even prior to the fall in prices, Bloomberg notes, the largest oil companies experienced lower returns on capital and some firms were struggling to generate enough cash to cover their dividends and investments.

Bloomberg observes that the new period of oversupply and low prices caused largely by the U.S. shale boom has raised a possibility that would have been unthinkable as recently as a few months ago: that the world no longer requires the large, expensive projects planned by the majors.

Morgan Stanley and Boston Consulting said the majors need to “undergo a dramatic” drop in costs and, even more significantly, change the culture ensure savings.

Bloomberg quotes the report as saying, “Big Oil still lacks a truly cost-conscious culture.” The report also suggests that the majors alter their mentality from broad generalists to becoming niche specialists- in other words, from the general to the specific.

The investment bank and management consultant said that there is a precedent for doing as they recommend. The report points to 1986, following a similar price collapse, when majors reduced costs and improved efficiency. This “allowed strong earnings and share performance in subsequent years, despite an extended period of oil price weakness,” Bloomberg quoted the report as saying.
Source: Industry News {$excerpt:n}