European Oil Majors Slash Spending in Face of ‘Triple Crises’

Total, Shell and Equinor, three of Europe’s largest oil
companies, all announced cost-cutting measures in response to the
collapse in oil prices and the impact of the coronavirus. The
impact on their clean-energy investment plans remains muted,
however, at least for now.

Total is facing three crises simultaneously, CEO Patrick
Pouyanné said: the coronavirus, the oil price collapse and
climate change. Amid those challenges, the company is “being taken
to task” in the media to play a more positive role in the energy
transition. 

But those challenges are daunting. Total had been budgeting for
oil at $60 per barrel; if prices were to remain at $35 for the
rest of this year, the company would lose $9 billion, Pouyanné
said in a video message to employees. At the time of publication,
Brent crude was trading at $25 having spent the best part of a week
under the $30 mark.

Rival oil producer Shell, meanwhile, now plans to limit its
capex for the year to €20 billion ($21.5 billion), down from
€25 billion. Norwegian firm Equinor has suspended
its share buyback program. Last week ExxonMobil CEO Darren Woods
said the company would soon finalize plans to “significantly
reduce capital and operating expenses.”

To begin addressing its own shortfall, Total will look to
cut 20 percent from its annual expenditures, which will be
distributed proportionately across its business
activities, Pouyanné said. While granular details on cost
reductions are not yet available, there are positive signs that
Total’s commitment to the energy transition will not be immediately
affected.

Amid a broader hiring freeze, Total’s “new energies” businesses
will be given an exemption to allow the company to “prepare for the
future,” Pouyanné said.

At the same time, Total continues to roll out a major energy
storage manufacturing expansion via its subsidiary Saft, in
partnership with automaker Opel. A pilot plant will open next
year.

Total is at the vanguard among major oil companies in its
renewables push; the French company has invested in gigawatt-scale
renewable pipelines of
wind
and
solar
assets chiefly in India, Spain and France, and it
recently acquired a majority stake in a
floating offshore wind project
in the U.K.

The messaging from Total thus far is in line with the theory
that the slump in oil prices will not
dampen the appetite
of the majors to reduce emissions and
segue into the power sector.

Among other announcements, Pouyanné said Total will intensify
its target for in-house emissions, going from a target to 40
million tons annually by 2025 to a new goal of half that
level. 

Questions about Shell’s clean energy spending plans

Pouyanné said cost-cutting measures could add up to $5 billion
of the $9 billion annual shortfall Total appears to be facing. The
company could borrow $4 billion at a rate of 2 percent if need be,
he added.

Shell, another relative clean energy leader among oil companies,
had previously increased the range of its annual investment in its
New Energies business from $1 billion-$1.5 billion to $1.5
billion-$2 billion.

GTM understands that Shell has not yet decided how it will
spread cost reductions across the business.

The annual investment figure for Shell’s New Energies business
is a guide rather than a target. Had the company won the tender for
the Dutch power supplier Eneco it would have tripled its annual
spend suggesting that figure has some flexibility if the right
investment comes along.

“As well as protecting our staff and customers in this
difficult time, we are also taking immediate steps to ensure the
financial strength and resilience of our business,” said Shell
CEO Ben van Beurden in a press statement. “The combination of
steeply falling oil demand and rapidly increasing supply may be
unique, but Shell has weathered market volatility many times in the
past.”

Source: FS – GreenTech Media
European Oil Majors Slash Spending in Face of ‘Triple Crises’