Saudi Aramco is increasing its capital investment budget for 2022 to around $45 billion, compared to analysts’ consensus expectations of around $36 billion, as it recycles higher profits into efforts to increase oil output, but its Western oil major equivalents are being so much more careful.
AJ Bell Investment Director Russ Mould said: “Although capital investment is set to rise by more than a quarter for 2022, budgets are not changing much and spending as a percentage of revenues remains near historic lows, even as Western leaders scratch around for more supply and place a newfound (if belated) emphasis on energy security.
“BP, Chevron, ConocoPhillips, ExxonMobil, ENI, Shell and TotalEnergies even slightly undershot forecasts for spending in 2021, as their aggregate capital investment spent came to a fraction under $75 billion.
“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.
“Environmental campaigners may rejoice at this and see it as an important step on the way to the net-zero world so actively championed at COP26 in Glasgow last November. Whether hard-pressed householders and under-pressure politicians see it in quite the same way now, a mere four months on from that event, is harder to divine as Western leaders seek to stir up better relations with Saudi Arabia or sanctions-hit, one-time pariahs such as Iran and Venezuela.
“The oil majors themselves may be reluctant to move as they still have the words of COP26 ringing in their ears, let alone calls from shareholders for greater capital discipline after the how 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 may face less pressure on several of these fronts and is looking to jack up spending and production accordingly, but there will be no overnight quick fix as output is expected to grow by perhaps three million barrels a day, to 13 million, by 2027 – that is equivalent to around 3% of global daily demand.”