As oil and gas companies cut ever-deeper into the bone to weather their worst downturn in decades, boards have adopted contrasting strategies to lead them out of the crisis.
Crude prices have tumbled around 70 percent over the past 18 months to around $35 a barrel, leading to five of the world's top oil companies reporting sharp declines in profits in recent days.
Executives at energy firms face a tough balancing act: they must cut spending to stay financially afloat while preserving the production infrastructure and capacity that will allow them to compete and grow when the market recovers.
Companies have opted for differing approaches to secure future growth, often choosing to narrow focus to their areas of expertise and the geographic location of their main assets.
American firms Chevron CVX.L ConocoPhillips (COP.N) and Hess Corp (HES.N) are withdrawing from more costly deepwater projects to focus on shale oil fields on their home turf, for example.
Britain's BP (BP.L) is betting on offshore gas in Egypt, while Royal Dutch Shell (RDSa.L) has opted for an alternative route as it seeks to safeguard its future: the $50 billion takeover of BG Group (BG.L).
In the five years before the downturn began in mid-2014, when crude prices held above $100 a barrel, big energy firms had raced to expand production capacity, including buying stakes in vast, costly fields sometimes located thousands of meters under the sea, and miles from land.
Over the past year however, companies have slashed their overall capital expenditure, scrapping plans for mega projects that cost billions to develop and take up to a decade to bring online.
"Companies want to strike a balance between long and short-cycle investments while maintaining a robust balance sheet to fund their way through the down cycle," said BMO Capital analyst Brendan Warn. Focusing on a specific set of expertise and geographies allowed them to offer investors a "unique value proposition", he added.
US shale, Egypt gas
Chevron, the second-largest US oil firm after Exxon Mobil (XOM.N) by market value, last week outlined plans to target spending on "short-cycle" investments – lower-cost projects that can take months, rather then several years, to come online.
In particular, it is focusing on its big presence in shale oil fields in the US Permian basin at the expense of high-cost, complex deepwater projects after cutting its 2016 capital expenditure, or capex, by 24 percent.
"In terms of longer-cycle projects, we aren't initiating. We aren't initiating any … You are going to see us preferentially favor short-cycle investments, and if they don't meet our hurdles, we won't invest," Chevron Chief Executive Officer John Watson said in an analyst call.
Even though developing shale wells can be more costly than some deepwater projects on a per-barrel basis, a much shorter development cycle and lower execution risks mean that companies can reap benefits quicker.
The short-term investment strategy is driven in part by the fact that, unlike for example BP, it already has a pipeline of longer-term projects – it is currently developing some of the world's largest liquefied natural gas (LNG) projects such as the Gorgon and Wheatstone plants in Australia.
Smaller firms ConocoPhillips and Hess have also shifted away from deepwater projects to onshore shale production including in North Dakota's Bakken Shale.
BP was one of very few companies that approved a major project last year, with its $12 billion investment decision in the West Nile Delta gas project in Egypt. The strategy is partly based its plans to see a large part of its future production growth come from gas off the coast of the North African country.
But the company, which reported its biggest-ever loss last week, also does not have the line-up of long-term projects boasted by the likes of Chevron; the development is also driven by the fact it sold more than $50 billion of assets after the deadly 2010 Gulf of Mexico oil spill, leading to a significant decline in output, according to analysts.
"BP aren't digging themselves through a hole. They are investing a little bit through the cycle,” said Warn.
Dealmaking
Shell, by contrast, opted at an early stage of the downturn to acquire Britain's BG Group in the sector's largest deal in a decade. It will make it a leader in LNG and offshore oil production in Brazil and increase its energy reserves by about a fifth.
The Anglo-Dutch group, which posted its lowest annual income for 13 years last week, expects to complete the deal this month.
US giant Exxon may need to take a leaf out of Shell's book and seek a major M&A deal after it surprised many in the market last week by slashing its 2016 spending by a quarter to $23 billion, said Anish Kapadia, analyst at Tudor, Pickering, Holt and Co.
The capex cut signals the company – which reported its smallest quarterly profit in more than a decade – is not planning to invest in many new projects, he said.
"That is a signal that Exxon doesn't have an attractive enough project queue to invest in and is not willing to invest in upstream, so if it wants to grow it will have to make an acquisition," added Kapadia.
"In this environment with the potential for higher oil price, Chevron are doing the right thing. They can survive over the next few years and have the option to grow. Exxon is at the bottom of the pile. It looks the most expensive but it is hard to justify given the lack of growth outlook."
Tudor, Pickering, Holt and Co. has a 'buy' recommendation on Chevron and Shell, a 'hold' on BP and 'sell' on Exxon.
Norway's Statoil (STL.OL) and France's Total (TOTF.PA), meanwhile, appear to be sitting in the middle ground: both have indicated they will not invest in new projects this year but they also have big projects coming on stream in the coming years that will counter production declines.
