Who retains the most value at lower prices, and who is the most sensitive to change? We’ve examined how the portfolios of Supermajors react to low, base-case, and high oil-price scenarios.
To better understand the key assets driving total net present value (NPV), we used Wood Mackenzie Lens® to run a variety of price and sensitivity scenarios for ExxonMobil, Shell, Chevron, BP, and Total. Watch our expert analysts discuss the valuation in more detail in the video below, or read on to get the highlights.
Which portfolios are most sensitive to oil price?
We first looked at the big picture across three long-term pricing scenarios: a low price at US$30 per barrel (bbl), base case at US$50/bbl, and our high case at US$70/bbl (real, 2020 terms). This reveals the overall portfolio linkage to oil price and the robustness of each company’s top assets. On the surface, ExxonMobil lost value the most quickly in our low-price scenario, but saw much larger gains than its peers in a high-price market. BP’s position was also of note, retaining the most value in a low-price environment and holding steady across base-case and high-price scenarios.
The bottom line
By modelling a range of scenarios for Supermajors’ portfolios in Lens, we found that they perform very differently under low, base case, and high-price models. BP came out as the most “defensive,” with its large domestic gas assets keeping it steady across fluctuating prices, while ExxonMobil is the best performer as price moves higher, with assets largely in tight oil, LNG and deepwater. We also discovered that the top 10 assets play a huge role in valuation sensitivity, and that divesting the “weakest” assets doesn’t necessarily strengthen a portfolio.
To better understand why portfolios reacted in their own unique ways, we turned to Lens to analyse each company’s top 10 assets across different scenarios.
Top 10 asset performance
Most of the Supermajors’ portfolios are heavily weighted towards oil, with BP as an outlier—many of its most important assets produce domestic gas, where prices have little or no linkage to crude. Once we started to dig deeper, the results showed that value sensitivity is greatly influenced by each portfolio’s top 10 assets, which contribute on average at least half of a company’s upstream portfolio value. But we also found a significant gap between how much these assets contributed to NPV, with US Majors’ top projects contributing up to 65% and BP and Total’s composing around 45%.
There was also great diversity in the themes and geographies within these top 10. Chevron had the least geographical diversity, with only three countries featured, versus Total with nine in its top 10. Having so much of its portfolio value locked up in only a few themes (such as LNG and tight oil) and in so few countries (primarily the USA, Australia and Kazakhstan), can help explain why Chevron made a recent move to acquire Noble Energy, was it offers both geographical and thematic diversity.
Bottom 10 assets and downside scenarios
Switching gears to examine downside, we also ran scenarios across the Supermajors’ bottom 10 assets to see what weighed portfolios down and whether divestment is the right strategy. Looking at this “bottom 50,” the results showed ExxonMobil with the greatest exposure, accumulating US$15 billion in negative NPV10, while Chevron fared the best at US$7.5 billion.
To better understand which of the bottom 50 assets were best suited to divestiture, we ran scenarios within our low, base case, and high-price scenarios. Some showed significant upside and were worth retaining depending on the price outlook, while others were negative in a low-price environment, marginal at base case, and offered very little upside even in our highest-price scenario, making them the most logical targets for divestment.
Going further into our analysis, we ran one of the supermajors with and without its five ‘weakest’ assets. While removing these assets improved portfolio resilience in a low-price environment, it also meant significant cash flow loss once prices returned to base-case or high-price scenarios. Ultimately, longer-term strategies and price outlooks for each asset owner will determine which assets should be retained.
Which assets are most vulnerable?
After analysing top and bottom asset performance across a range of price scenarios and market sensitivities, we developed a risk-exposure matrix summarising which types of assets carry the highest risk. In terms of downside exposure, we found assets such as oil sands and other projects with large, ongoing capex requirements combined with significant opex, can lose significant NPV at low prices.
The highest-risk assets, even in a high-price environment, included those with high upfront capex on complex, technologically challenging projects – such as FLNG – and those with significant near-term abandonment spend, or heavy oil and oil sands in general.
A single platform for faster portfolio analysis
Lens allows companies to make informed capital allocation decisions to drive portfolio performance by offering faster valuations across multiple price and cost scenarios and market sensitivities. Using a single platform, businesses can evaluate their own portfolios, benchmark their competitors’ holdings, and access fiscal models that allow adding user-defined assumptions and custom testing scenarios.
Source: Wood Mackenzie