Even when oil prices were at record or near-record levels, high operating costs made fossil companies a less-than-attractive deal for investors, Goldman Sachs Group reports in an analysis released this week.
“The rising oil prices that came to characterize energy markets in the mid-2000s, and which culminated in a record near-$150 a barrel in 2008, were not the windfall investors might have imagined,” Bloomberg explains. “Instead, returns for major oil companies such as BP, Royal Dutch Shell, and ExxonMobil Corporation actually declined between 2005 and 2014 as measured by cash return on capital invested.”
By that standard, “while the big three oil majors saw their total profits rise alongside higher oil prices, the amount of cash generated by their investments was declining, indicating higher costs of business. Returns per euro or dollar invested by capital-intensive Big Oil were hit with a triple whammy of higher taxes, more expensive service costs, and increased finding and development (F&D) expenses.”
Crashing oil prices have brought those companies’ returns much lower. They’re “now hovering at a 50-year low for the three super majors, according to Goldman’s figures,” Bloomberg notes. And the analysts don’t see much prospect for fossils to recover with prices at or below US$50 per barrel.