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How oil majors survived huge price decline in 2018: lessons for local oil firms

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The oil market witnessed a 40 percent decline in the value of oil prices in the fourth quarter of 2018. This shook major oil producers in the world – ExxonMobil, Chevron, Shell, and others. Yet, the decline did little to hinder the companies from reporting strong results.

The oil giants took some steps to combat the ugly situation last year. Local oil firms can learn from the measures taken by these companies to boost their business.

To start with, diversification in markets, product offerings and investments portfolio helped the companies immensely. Diversification is about building new products, exploring new markets, and taking new risks.

According to BusinessDay, Chevron diversified into shale fields and this lifted the company’s earnings and cash flow. The company generated $9.2 billion in cash flow from operations in the fourth quarter of 2018, up from $8.0 billion a year earlier. Its 2019 capital spending budget is going toward projects that can deliver cash within two years.

Like Chevron, Anglo-Dutch oil group, Shell, which posted full-year earnings of US$21.404 billion an increase of 36 percent from the previous year’s figures due to increased revenue from oil, gas, and liquefied natural gas (LNG) also diversified its portfolio. The diversification enabled it to make profit even when trading was weak in its biggest products.

French oil major, Total, said it saw a net profit of $1.13 billion for the October-December period, up from $1.02 billion a year earlier, due to increased production volumes.

On improvement of portfolio, the CEO, ExxonMobil, Darren Woods said the company focused on long-term fundamentals and portfolio improvements which positioned them well to grow shareholder value.

“ExxonMobil’s 2018 results further demonstrate the company’s advantages in technology, scale and integration, providing a strong foundation to successfully compete across commodity price cycles,” said Darren Woods, chairman and CEO, ExxonMobil.

Local oil firms are therefore encouraged to improve and diversify their portfolio. One of the ways to do is investing in Nigeria’s emerging solar industry which is ripe for investment, but local firms are paying little attention according to BusinessDay. Even the world’s biggest oil trader, Shell, sees a future in solar thus, taking positions there. Shell funds All On, an impact investment firm to take a position in Nigeria’s off-grid market, local oil companies could look at opportunities in the off-grid space.

Source Businessday
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