How Wall Street is killing Big Oil

Chicago

LEE Raymond, the famously pugnacious oilman who led ExxonMobil between 1999 and 2005, liked to tell Wall Street analysts that covering the company would be boring. "You'll just have to live with outstanding, consistent financial and operating performance," he once boasted. For generations, Exxon and its Big Oil brethren - including Chevron, ConocoPhilipps, BP, Royal Dutch Shell and Total - dominated the global energy landscape, raking in enormous profits and delivering fat dividends to shareholders. Big Oil has long been an investor darling.

Those days are over. Once reliable market beaters, Big Oil shares are lagging: Over the past five years, when the S&P 500 rose more than 80 per cent, shares of Exxon and Shell rose just over 30 per cent. The underperformance reflects oil majors' inability to maintain steady cash flows and increase production in a world where much of the easy oil has already been found and project costs are rapidly escalating. Last year, Exxon, Chevron and Shell failed to increase oil and gas production despite having spent US$500 billion over the previous five years, US$120 billion in 2013 alone. Under pressure from investors, the world's largest oil companies are now forced to cut capital expenditure and sell assets to boost cash flows.