The oil and gas industry builds some of the world’s largest, most technically-challenging and expensive projects, especially now as companies are pushed further offshore, into the Arctic and into unconventional resource opportunities. As such, capital expenditure is closely watched by investors and there is consistent discourse around how much cash should be deployed to increase reserves and production and how much returned to shareholders.

During the 2008 global economic and financial crisis, many large oil companies put the brakes on large operational investments amid turmoil and uncertainty, amassed large cash stockpiles and initiated major share buyback programs.

As things loosened up again and companies began spending more operationally, the capex deployment debate began getting louder. The Financial Times just ran a detailed piece [subscription required] that looks at how oil majors are handling their capex programs now and over the medium term.

“The critical debate among equity investors is: what is the right balance these companies should be striking between retaining cash to reinvest in the business and distributing it to shareholders?” – Martijn Rats of Morgan Stanley

Deutsche Bank’s Paul Sankey is quoted as saying ExxonMobil has a “track record of capex creep”, and its capital and exploration budget turned out higher than predicted in recent years.

Companies must strike a delicate balance between investing in long-life projects that do not produce returns for many years, not spending enough – which can result in supply problems over the longer term – and keeping shareholders happy. One thing that’s certain is with capital budgets that can reach into the $45 billion range, capital expenditure will always be a highly-scrutinized metric.