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Oil Firms Ready to Gush Cash

With integrated oil firms now set to generate more free cash flow, we see several good investment opportunities.

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We see opportunity in large, integrated oil firms today. After years of generating little or no free cash flow, these firms are now set to reverse course as high levels of investment give way to growth and capital restraint. We expect increased free cash flow from both upstream and downstream segments.

In upstream, improved cost structures and the addition of higher margin production will increase cash margins, offsetting much of the impact of lower oil prices. Meanwhile, service cost deflation, standardization, and simplification combine to reduce the capital intensity of key project areas such as deep water, shelf, and onshore, creating the opportunity to do more with less.

Allen Good does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.