New analysis: Oil and gas majors would create $78bn more value by stopping exploration

Ten of the world’s largest oil and gas companies would create significantly more shareholder value by ending exploration and sharply curtailing upstream development, according to new analysis released today by ACCR.

“When growth no longer pays” assesses all the conventional oil and gas exploration and new projects the companies could invest in before 2035. It finds:

• ceasing exploration and development of new projects and returning cash to shareholders would create a collective US$78 billion uplift in net present value (NPV)
• across all ten companies, avoided exploration costs are the largest source of value
• all ten companies would be more valuable as a production company, than as an exploration and production company.

The financial case for exploration is weak and getting worse. On average, every $1 spent on global conventional exploration by the sector since 2000 has eroded $0.71c. Conventional exploration is five times more expensive and taking almost twice as long compared to three decades ago.

If all ten companies ceased developing new conventional projects, they would remain large oil and gas producers for decades, with cumulative production reducing by 10% to 2050, compared to continuing a business-as-usual strategy.

Commenting on the research, Alex Hillman, Lead Analyst of the Australasian Centre for Corporate Responsibility (ACCR) said:

“The clearest path to shareholder value for oil and gas companies today is not chasing new barrels – it’s getting out of the value erosive exploration business and curtailing new conventional projects.

“Exploration isn’t creating value - it’s destroying it and has been for 25 years.

“Every one of the ten oil and gas companies we assessed is more valuable as a production company, rather than an exploration and production company.

“If creating shareholder value is the aim then ceasing exploration should be considered.

“Even if these companies ceased developing new conventional projects they would remain large oil and gas producers for decades. Cumulative production would reduce by 10% to 2050. And $78 billion of shareholder value would be created.

“Many investors would prefer to see a company give cash back to shareholders, rather than reinvest it in value erosive projects, even if it meant production gradually decreased.

Commenting on the research, Nick Mazan, ACCR Oil and Gas Strategy Lead, said:

“The oil and gas sector is running out of road. Exploration is slower, costlier, and eroding value, while the market itself is shrinking as more sectors electrify.

“This industry has delivered half the returns of the rest of the market over the last 10 years and continuing to plough shareholder money into upstream exploration and new projects will not change that.

“Oil and gas companies continue to underestimate the speed of technological change. The current oversupply in the market can largely be attributed to this, with little hope of improving circumstances in the future.”