Released May 05, 2020 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Big Oil reported terrible first-quarter results last week, and there are signs the second quarter also could be grim, but for a different reason.
Normally, the asset mix of integrated oil majors like Exxon Mobil Corporation (NYSE:XOM) (ExxonMobil) (Irving, Texas), BP Plc (NYSE:BP) (London, England) and Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands) would offer some measure of protection against wild fluctuations in crude oil prices. High oil prices would lower income from the downstream (Refining & Marketing) segment but fatten profits upstream (in the Exploration & Production unit). Low crude oil prices often boosted profits in the downstream business, as input costs often fell faster that retain prices at the pump, that offset lower E&P earnings.
But in the first quarter, a price collapse triggered by Saudi Arabia and Russia flooded the world with crude oil as demand was falling by as much as 30% as the COVID-19 pandemic closed factories around the world, took cars off the road and idled aircraft.
Crude oil prices fell steadily during the first quarter: Brent fell from $66 to $26 per barrel while West Texas Intermediate (WTI) slid from $61 to $20 per barrel. A lot of the decline for both grades took place in March, during the global price war.
On earnings calls, oil company leaders said they thought the second quarter would be rockier than the first. COVID-19 only started cutting into global economies during the last month--March--of the quarter. By contrast, despite some optimistic assessments about the cautious efforts to open state and national economies, there is still no cure or treatment for the virus, which has sickened more than 3.5 million people and killed more than 250,000 globally. Demand for crude and refined products could pick up in the second quarter if there isn't a second wave of sickness.
But as Big Oil was reporting some of its worst financial results in decades, a second challenge emerged: Most integrated majors produce oil in OPEC+ nations, and a share of the cuts agreed to by those nations, which became official May 1, will be borne by companies operating in those countries. Nations in the Group of 20 (G20) also agreed to reduce production to close the gap between global supply and demand, and Big Oil is expected to have to shoulder a portion of cuts by those countries, which include the U.S., Canada, Russia, Brazil, Mexico, China, and Indonesia, among others.
"The first quarter was rough for integrated majors and independent producers alike," commented Jesus Davis, Industrial Info's North American specialist for the Oil & Gas Production, Pipelines and Terminals industries. "But COVID-19 continues to hang over most of the world's economies, which could mean continued weak demand for crude and refined products. And while OPEC+ and the G20 agreed to cut crude oil production effective May 1, available storage capacity is fast disappearing. Unless demand quickly snaps back--an unlikely prospect--the world will remain awash with excess oil during the second quarter."
Royal Dutch Shell
First-quarter revenue declined 28%, to $60 billion from $83.4 billion for the first quarter of 2019, and the company reported a net loss of $24 million compared to a profit of $6 billion in the year-earlier quarter. On April 30, in conjunction with first-quarter results, company leaders cut the common-stock dividend, the first time that has happened in 75 years. The payout was slashed 66%. It said it expected second-quarter production to fall to between 1.75 and 2.25 million barrels per day (BBL/d), down from 2.7 million BBL/d in the just-concluded quarter.
While profits declined slightly at the company's integrated gas business--falling to $2.1 billion vs. $2.6 billion in last year's first quarter--E&P profits cratered, to $291 million in the first quarter compared to $1.6 billion in the comparable year-earlier quarter. Profits fell only slightly in the oil products segment.
A month before reporting results, Shell cut its capital spending 20%, to $20 billion from $25 billion, and halted its common stock repurchase program.
ExxonMobil
Last Friday, ExxonMobil reported a $2.9 billion non-cash charge stemming from low commodity prices and for asset impairments, driving its results to a $610 million loss compared with a $2.4 billion profit in the year-earlier quarter. It was the first time the company reported a net loss in three decades. Revenue fell to $56.2 billion from $63.6 billion for the first quarter of 2019.
On a year-over-year basis, quarterly profit at ExxonMobil's E&P segment fell $2.3 billion, to $536 million from $2.9 billion in the first quarter of 2019. The company's downstream business posted a loss of $611 million for the quarter; by contrast, that segment lost $256 million during the first quarter of 2019. The chemicals business posted earnings of $144 million, but that was down from $357 million in the comparable year-earlier quarter.
In announcing results on May 1, Exxon Mobil said it was cutting 2020 capital expenditures (capex) 30%, to $23 billion from $33 billion, and that cash operating expenses would drop 15%. It took no action on its dividend beyond saying it would maintain it at its current level in the second quarter.
The company estimated it would reduce crude oil production by about 400,000 barrels per day (BBL/)d in the second quarter, including around 100,000 BBL/d in the Permian Basin of Texas and New Mexico, as a result of the COVID-19 pandemic.
"COVID-19 has significantly impacted near-term demand, resulting in oversupplied markets and unprecedented pressure on commodity prices and margins," Darren W. Woods, chairman and chief executive officer, said in releasing results. "While we manage through these challenging times, we are not losing sight of the long-term fundamentals that drive our business. Economic activity will return, and populations and standards of living will increase, which will in turn drive demand for our products and a recovery of the industry."
BP
On an operating basis, BP lost $4.4 billion during the first quarter, down sharply from the year-earlier quarterly earnings of $2.1 billion, but a $3.7 billion gain on inventories trimmed first-quarter losses to $628 million. Quarterly revenue fell to $59.6 billion from $66.3 billion during the year-earlier period.
First-quarter earnings before interest and tax were $955 million for the E&P business, down from $2.9 billion in the year-earlier period. The downstream business lost $4 billion before taxes and interest; by contrast, for the first quarter of 2019, the downstream segment earned $2.8 billion, before taxes and interest.
The company's 2020 organic capex is expected to fall about 25% to $12 billion from $16 billion in 2019. By the end of 2021, the company predicted its cash operating costs would fall $2.5 billion from 2019 levels. Since early 2019, BP has divested about $10 billion of properties, and it said it was on its way to selling another $5 billion of assets by year-end 2021. The company took no action on its dividend.
Speaking about its E&P segment, BP said "we expect second-quarter reported production to be lower compared to the first quarter, and will be subject to significant uncertainties."
The company loaded up on debt in the just-completed quarter, but didn't cut its dividend. BP reiterated its goal of becoming a net-zero emitter of carbon dioxide by 2050 or sooner.
Bernard Looney, the chief executive officer since February, commented: "Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward. We are focusing our efforts on protecting our people, supporting our communities and strengthening our finances."
He said the company also was "taking decisive actions to strengthen our finances-- reinforcing liquidity, rapidly reducing spending and costs, driving our cash balance point lower. We are determined to perform with purpose."
Chevron
Chevron turned in the best performance among Big Oil in the first quarter, earning $3.6 billion, a $1 billion increase over first-quarter 2019 results. First-quarter results were boosted by about $1.2 billion in non-recurring items: a $240 million gain on assets sold in the Philippines; a $440 million favorable tax treatment on upstream assets; and a foreign exchange gain of about $514 million. Revenue for the just-completed quarter totaled $30 billion, $4 billion less than in the comparable year-earlier period.
The company's E&P segment earned $2.9 billion in the first quarter, down slightly from the $3.1 billion earned in that business during the first quarter of 2019. The downstream business earned $1.1 billion, compared with $252 million in last year's first quarter.
"First quarter earnings were up from a year ago," said Michael Wirth, Chevron's chairman of the board and chief executive officer, "driven by downstream margins and increased Permian production. However, commodity prices fell significantly in March and the weakness continued into the second quarter, primarily due to reduced demand resulting from the COVID-19 pandemic."
Financial results in future periods are expected to be depressed as long as current market conditions persist, the company projected.
"Chevron is responding to these unprecedented challenges by making changes to what we control, and with a commitment to protect the long-term health and value of the company," Wirth added. "Our company entered this crisis well positioned with a strong balance sheet, flexible capital program and low breakeven price. These advantages will be important as we respond to challenging market conditions."
The company is reducing by an additional $2 billion its capex program, to $14 billion. It is cutting cash operating costs by about $1 billion. Earlier, it suspended its share repurchase program.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Normally, the asset mix of integrated oil majors like Exxon Mobil Corporation (NYSE:XOM) (ExxonMobil) (Irving, Texas), BP Plc (NYSE:BP) (London, England) and Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands) would offer some measure of protection against wild fluctuations in crude oil prices. High oil prices would lower income from the downstream (Refining & Marketing) segment but fatten profits upstream (in the Exploration & Production unit). Low crude oil prices often boosted profits in the downstream business, as input costs often fell faster that retain prices at the pump, that offset lower E&P earnings.
But in the first quarter, a price collapse triggered by Saudi Arabia and Russia flooded the world with crude oil as demand was falling by as much as 30% as the COVID-19 pandemic closed factories around the world, took cars off the road and idled aircraft.
Crude oil prices fell steadily during the first quarter: Brent fell from $66 to $26 per barrel while West Texas Intermediate (WTI) slid from $61 to $20 per barrel. A lot of the decline for both grades took place in March, during the global price war.
On earnings calls, oil company leaders said they thought the second quarter would be rockier than the first. COVID-19 only started cutting into global economies during the last month--March--of the quarter. By contrast, despite some optimistic assessments about the cautious efforts to open state and national economies, there is still no cure or treatment for the virus, which has sickened more than 3.5 million people and killed more than 250,000 globally. Demand for crude and refined products could pick up in the second quarter if there isn't a second wave of sickness.
But as Big Oil was reporting some of its worst financial results in decades, a second challenge emerged: Most integrated majors produce oil in OPEC+ nations, and a share of the cuts agreed to by those nations, which became official May 1, will be borne by companies operating in those countries. Nations in the Group of 20 (G20) also agreed to reduce production to close the gap between global supply and demand, and Big Oil is expected to have to shoulder a portion of cuts by those countries, which include the U.S., Canada, Russia, Brazil, Mexico, China, and Indonesia, among others.
"The first quarter was rough for integrated majors and independent producers alike," commented Jesus Davis, Industrial Info's North American specialist for the Oil & Gas Production, Pipelines and Terminals industries. "But COVID-19 continues to hang over most of the world's economies, which could mean continued weak demand for crude and refined products. And while OPEC+ and the G20 agreed to cut crude oil production effective May 1, available storage capacity is fast disappearing. Unless demand quickly snaps back--an unlikely prospect--the world will remain awash with excess oil during the second quarter."
Royal Dutch Shell
First-quarter revenue declined 28%, to $60 billion from $83.4 billion for the first quarter of 2019, and the company reported a net loss of $24 million compared to a profit of $6 billion in the year-earlier quarter. On April 30, in conjunction with first-quarter results, company leaders cut the common-stock dividend, the first time that has happened in 75 years. The payout was slashed 66%. It said it expected second-quarter production to fall to between 1.75 and 2.25 million barrels per day (BBL/d), down from 2.7 million BBL/d in the just-concluded quarter.
While profits declined slightly at the company's integrated gas business--falling to $2.1 billion vs. $2.6 billion in last year's first quarter--E&P profits cratered, to $291 million in the first quarter compared to $1.6 billion in the comparable year-earlier quarter. Profits fell only slightly in the oil products segment.
A month before reporting results, Shell cut its capital spending 20%, to $20 billion from $25 billion, and halted its common stock repurchase program.
ExxonMobil
Last Friday, ExxonMobil reported a $2.9 billion non-cash charge stemming from low commodity prices and for asset impairments, driving its results to a $610 million loss compared with a $2.4 billion profit in the year-earlier quarter. It was the first time the company reported a net loss in three decades. Revenue fell to $56.2 billion from $63.6 billion for the first quarter of 2019.
On a year-over-year basis, quarterly profit at ExxonMobil's E&P segment fell $2.3 billion, to $536 million from $2.9 billion in the first quarter of 2019. The company's downstream business posted a loss of $611 million for the quarter; by contrast, that segment lost $256 million during the first quarter of 2019. The chemicals business posted earnings of $144 million, but that was down from $357 million in the comparable year-earlier quarter.
In announcing results on May 1, Exxon Mobil said it was cutting 2020 capital expenditures (capex) 30%, to $23 billion from $33 billion, and that cash operating expenses would drop 15%. It took no action on its dividend beyond saying it would maintain it at its current level in the second quarter.
The company estimated it would reduce crude oil production by about 400,000 barrels per day (BBL/)d in the second quarter, including around 100,000 BBL/d in the Permian Basin of Texas and New Mexico, as a result of the COVID-19 pandemic.
"COVID-19 has significantly impacted near-term demand, resulting in oversupplied markets and unprecedented pressure on commodity prices and margins," Darren W. Woods, chairman and chief executive officer, said in releasing results. "While we manage through these challenging times, we are not losing sight of the long-term fundamentals that drive our business. Economic activity will return, and populations and standards of living will increase, which will in turn drive demand for our products and a recovery of the industry."
BP
On an operating basis, BP lost $4.4 billion during the first quarter, down sharply from the year-earlier quarterly earnings of $2.1 billion, but a $3.7 billion gain on inventories trimmed first-quarter losses to $628 million. Quarterly revenue fell to $59.6 billion from $66.3 billion during the year-earlier period.
First-quarter earnings before interest and tax were $955 million for the E&P business, down from $2.9 billion in the year-earlier period. The downstream business lost $4 billion before taxes and interest; by contrast, for the first quarter of 2019, the downstream segment earned $2.8 billion, before taxes and interest.
The company's 2020 organic capex is expected to fall about 25% to $12 billion from $16 billion in 2019. By the end of 2021, the company predicted its cash operating costs would fall $2.5 billion from 2019 levels. Since early 2019, BP has divested about $10 billion of properties, and it said it was on its way to selling another $5 billion of assets by year-end 2021. The company took no action on its dividend.
Speaking about its E&P segment, BP said "we expect second-quarter reported production to be lower compared to the first quarter, and will be subject to significant uncertainties."
The company loaded up on debt in the just-completed quarter, but didn't cut its dividend. BP reiterated its goal of becoming a net-zero emitter of carbon dioxide by 2050 or sooner.
Bernard Looney, the chief executive officer since February, commented: "Our industry has been hit by supply and demand shocks on a scale never seen before, but that is no excuse to turn inward. We are focusing our efforts on protecting our people, supporting our communities and strengthening our finances."
He said the company also was "taking decisive actions to strengthen our finances-- reinforcing liquidity, rapidly reducing spending and costs, driving our cash balance point lower. We are determined to perform with purpose."
Chevron
Chevron turned in the best performance among Big Oil in the first quarter, earning $3.6 billion, a $1 billion increase over first-quarter 2019 results. First-quarter results were boosted by about $1.2 billion in non-recurring items: a $240 million gain on assets sold in the Philippines; a $440 million favorable tax treatment on upstream assets; and a foreign exchange gain of about $514 million. Revenue for the just-completed quarter totaled $30 billion, $4 billion less than in the comparable year-earlier period.
The company's E&P segment earned $2.9 billion in the first quarter, down slightly from the $3.1 billion earned in that business during the first quarter of 2019. The downstream business earned $1.1 billion, compared with $252 million in last year's first quarter.
"First quarter earnings were up from a year ago," said Michael Wirth, Chevron's chairman of the board and chief executive officer, "driven by downstream margins and increased Permian production. However, commodity prices fell significantly in March and the weakness continued into the second quarter, primarily due to reduced demand resulting from the COVID-19 pandemic."
Financial results in future periods are expected to be depressed as long as current market conditions persist, the company projected.
"Chevron is responding to these unprecedented challenges by making changes to what we control, and with a commitment to protect the long-term health and value of the company," Wirth added. "Our company entered this crisis well positioned with a strong balance sheet, flexible capital program and low breakeven price. These advantages will be important as we respond to challenging market conditions."
The company is reducing by an additional $2 billion its capex program, to $14 billion. It is cutting cash operating costs by about $1 billion. Earlier, it suspended its share repurchase program.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
