(The opinions expressed here are those of the author, a

columnist for Reuters.)

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Oil majors cut buybacks and costs in face of expected

downturn

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But boards invest in big-ticket mega oil and gas projects

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Oil supply growth expected to go into reverse by 2030

By Ron Bousso

LONDON, Sept 30 (Reuters) - While energy companies are

retrenching in the face of a bleak near-term outlook for oil and

gas, their investment plans suggest they believe the environment

will shift dramatically by the end of the decade.

Energy companies' spending plans are typically a good gauge

of their confidence in the sector's long-term outlook, given

that it takes years to develop an oil or gas field and many more

years before profits from these investments show up.

Accurately forecasting the oil and gas sector's fortunes

many years out has become particularly tricky in recent years.

On the one hand, the energy transition has raised questions

about future demand for fossil fuels. On the other, governments'

renewed focus on energy security in the wake of the 2022 war in

Ukraine has revived investment appetite, leading companies such

as BP and Shell to reverse their strategies away

from renewable energy and back toward their core oil and gas

businesses.

The top western energy companies' current investment and

spending plans suggest bullish arguments about the future of

fossil fuels are gaining ground, even as prices are expected to

fall in the near term.

SHORT-TERM CAUTION

Price forecasts for crude in the next two years are pretty

gloomy, as many agencies and investors anticipate a significant

oil glut due to increased production from OPEC and non-OPEC

nations. The U.S. Energy Information Administration expects

Brent prices to fall from an average of $68 per barrel

this year to $51 in 2026.

On top of that, an expected surge in liquefied natural gas

capacity in the coming years, emanating primarily from the U.S.

and Qatar, is set to put pressure on another key growth market

for the sector.

Oil and gas companies have responded to the darkening

outlook by slashing jobs, costs and - perhaps most notably -

buybacks.

The majors had increasingly been using share repurchases to

attract investment in recent years. The scale of buybacks in the

sector rose sharply after the COVID-19 pandemic, particularly in

the wake of the energy price rally that followed Russia's

invasion of Ukraine.

The top five western energy majors - BP, Chevron ( CVX ),

Exxon Mobil ( XOM ), Shell and TotalEnergies -

repurchased a total of $61.5 billion of shares in 2024, more

than the $51 billion paid out as dividends, according to Reuters

calculations.

However, that trend has now stalled. TotalEnergies last week

announced it will slow the pace of its share buyback programme

from around $2 billion per quarter this year to a range of $750

million to $1.5 billion per quarter next year.

The company cited "economic and geopolitical uncertainties"

and needing "to retain room to maneuver" as justifications for

the move.

Chevron ( CVX ) and BP slowed their buyback pace earlier this year.

The reduced share repurchases are accompanied by deep cost

cuts.

Chevron ( CVX ) is in the midst of a $3 billion cost-cutting drive by

2026 that will see it lay off up to 20% of its workforce, around

9,000 people. U.S. rival ConocoPhillips ( COP ) plans to cut as

much as 25% of its workforce. BP announced earlier this year

plans to cut over 7,000 jobs, which was followed last month by a

further cost review that came on top of a $4-5 billion

cost-cutting target for 2023-2027. Exxon and Shell are also

trimming expenses aggressively.

These cuts are the deepest the sector has seen in recent

history, including during the pandemic, pointing to a heightened

focus on competitiveness and a rising bearishness about the

near-term outlook for energy prices.

LONG-TERM FORTUNE

But look beyond the next few years, and Big Oil appears much

more sanguine, evidenced by these companies' willingness to

invest in new mega projects and make huge acquisitions.

BP on Monday announced it will go ahead with developing a $5

billion offshore drilling project in the Gulf of Mexico. The

Tiber-Guadalupe project, expected to begin oil and gas

production in 2030, will include a floating platform with the

capacity to produce 80,000 barrels of crude per day.

TotalEnergies on Monday announced it had acquired onshore U.S.

gas producing assets.

Exxon, the largest of the western majors, has kept its capital

spending plans for 2025 steady at $27-29 billion as it continues

to increase output in U.S. shale basins and in Guyana. It also

said in August that it was ready to take advantage of lower oil

prices and make acquisitions.

Underpinning this confidence are forecasts that the upcoming

strong growth in oil production will go into reverse by the end

of the decade.

Indeed, the International Energy Agency expects world oil

supply to grow by 4.5 million bpd between 2024 and 2028 to 107.6

million bpd before stagnating in 2029 and declining by 400,000

bpd in 2030.

On top of the slower growth, the natural decline of

oilfields means companies need to invest meaningfully simply to

keep their production steady.

Of course, oil demand growth is also expected to decelerate

in the coming years, partly because of the adoption of electric

vehicles. A faster than anticipated slowdown in consumption

could weigh on oil prices, even if supply growth slows.

But for now, companies' willingness to look past a looming

downturn suggests boards believe crude prices will rise by the

end of the decade and remain sufficiently elevated into the next

decade to pay back their big-ticket investments in new fields.

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(Ron Bousso

Editing by Marguerita Choy)