Falling crude oil prices—now in the low $60 per barrel range—are placing heavy pressure on the oil and gas industry. As profits shrink and cash flows tighten, many companies are beginning to cut back on new investments, instead focusing on returning money to shareholders through dividends and stock buybacks.
Major oil firms have already signaled this shift in strategy. Although the full impact of market volatility on oil prices remains unclear, early indicators show that sustaining current levels of shareholder payouts into 2025 would require oil prices to rebound to around $80 per barrel. This gap between today’s prices and the breakeven point suggests the industry may face tough decisions ahead.
One way companies could address the shortfall is through borrowing. Many major firms have reduced their debt in recent years and may have room to take on more. But if prices stay low, further cuts in capital spending and reductions in buybacks seem increasingly likely.
“Tight oil producers in the U.S. are in a better position,” said Espen Erlingsen, Head of Upstream Research. “They can maintain investments and shareholder distributions at around $60 per barrel, which means they’re less exposed to the current price levels than the majors.”
As a result of this downturn, upstream investment forecasts have been revised downward by about 5% over the medium term. This drop is mainly driven by delays in project approvals due to weaker project economics and greater uncertainty in the market. Deepwater oil developments are particularly affected, as they depend heavily on large upfront investments and are often led by the major players.
The industry now faces a difficult balance between maintaining shareholder confidence and ensuring long-term growth, all while navigating a volatile pricing environment.
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