Super Major Multinational Oil Firms Can Continue to Invest for the Future

Source Article: Shell Plans Major Investments in 2009, Tags Dividend Growth at $10 billion | www.rigzone.com (article)

Implications:
1) Recent big profits give them strong balance sheets
2) Can Source Capital inexpensively right now
3) World Still Hungry for Hydrocarbons at any Price
4) OilCo's can control bio and alternative fuel assets at discount now.

Analysis:
Shell's announcement of capital expenditures remaining at high levels should come as no surprise. All the Supermajor Multinational Oil firms have plenty of cash and strong balance sheets, access to capital at very low rates, and an inelastic demand vs price in hydrocarbon based energy. ExxonMobil(NYSE:XOM) and Total are doing the same.

While prices are down right now, the historic run-up last year showed just how inelastic the core demand for oil, natural gas and refined products really is. While alternative fuels and conservation measures like hybrid and electric cars will reduce demand in the long run, those developments are still way out on the investment horizon.

The oil companies can also exert influence and a degree of control on the future of biofuels right now, and Valero's(NYSE:VLO) announced purchase of bankrupt VeraSun's ethanol production assets this week shows. BP, Chevron(NYSE:CVX) and ExxonMobil are all featuring alternative technologies in their advertising right now.

The collapse of oil prices created an opportunity to purchase overleveraged bio and alternative fuel assets at a discount, as the market price the VeraSun's and the like used to justify investment fell apart.

So the future for the Oil companies isn't just about crude, but the alternatives and substitutes being developed to supplant the world demand for crude. The Supermajors are expert and efficient conduits for product and capital, as they diversify into the other types of energy alternatives, that isn't going to change.