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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Third-quarter financial results for companies in the Oil Patch -- including integrated oil majors and stand-alone refiners -- have generally improved over second-quarter 2020 results, but they are far worse than they were for the year-earlier quarter, when oil sold for higher prices and before economic restrictions stemming from the COVID-19 pandemic choked off demand for transportation fuels.
Most independent exploration & production (E&P) companies will report earnings in the coming weeks. They, too, are expected to show better results compared with second-quarter performance, but their businesses are expected to remain pressured by low prices and weak demand.
Those trends have battered reported results for Oil Patch companies. A few reported earnings, but many had operating losses made worse by one-time items or non-operating charges. Weak results across the sector should not be particularly surprising given that crude oil sold for $15 to $20 per barrel less than in the year-earlier quarter. Throttled by travel restrictions and consumer fears over the pandemic, which has killed over 228,000 Americans, demand for gasoline in the U.S. fell by over two million barrels per day (BBL/d), over 11%, on a quarter-over-quarter basis.
Most independent exploration & production (E&P) companies will report earnings in the coming weeks. They, too, are expected to show better results compared with second-quarter performance, but their businesses are expected to remain pressured by low prices and weak demand.
Those trends have battered reported results for Oil Patch companies. A few reported earnings, but many had operating losses made worse by one-time items or non-operating charges. Weak results across the sector should not be particularly surprising given that crude oil sold for $15 to $20 per barrel less than in the year-earlier quarter. Throttled by travel restrictions and consumer fears over the pandemic, which has killed over 228,000 Americans, demand for gasoline in the U.S. fell by over two million barrels per day (BBL/d), over 11%, on a quarter-over-quarter basis.
BP Plc (NYSE:BP) (London, England): The British integrated oil supermajor on October 27 reported a quarterly loss of about $450 million, compared with losses of $700 million and $16.8 billion for the third quarter of 2019 and the second quarter of 2020, respectively.
The company is trying to reinvent itself as the world tries to determine the long-term effect the pandemic will have on the global demand for hydrocarbons. For more on that, see the September 18, 2020, article -- BP Report Considers How Global Oil Demand Could Change Over Next Three Decades.
BP said its capital expenditures in 2020 will be about $12 billion, down roughly 40% from the roughly $44 billion the company spent in 2014. Next year's capital expenditures are expected to be about $13 billion. The company expects to realize $25 billion in asset sales by the end of 2025, including $5 billion in sales of petrochemical assets by yearend 2020.
BP Chief Executive Officer Bernard Looney said: "Having set out our new strategy in detail, our priority is execution and, despite a challenging environment, we are doing just that -- performing while transforming. Major projects are coming online, our consumer-facing businesses are really delivering and we remain firmly focused on cost and capital discipline. Importantly, net debt continues to fall. We are firmly committed to our updated financial frame, including the dividend -- the first call on our funds."
Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, The Netherlands): The company earned $498 million for the just-completed quarter, down sharply from the $5.9 billion it earned in the year-earlier quarter. For nine months, losses totaled $17.7 billion compared with earnings of $14.9 billion for the first three quarters of 2019.
In its earnings release, issued last Thursday, the company said lower prices for crude oil and liquefied natural gas (LNG), as well as lower refining margins and production volumes, dragged down third-quarter results. Partly offsetting these factors were lower operating expenses, well write-offs and depreciation as well as strong marketing margins. Third-quarter results included a $1.1 billion impairment charge, which was partly offset by gains on derivatives valuations of about $500 million.
Shell's upstream business lost $1.1 billion in the just-completed quarter, compared with earnings of about $1.7 billion in the third quarter of 2019. The company's downstream division earned $2.1 billion in this year's third quarter compared with $2.4 billion last year.
In the just-completed quarter, Shell increased its common-stock dividend and approved plans to return 20% to 30% of operating cash flow to shareholders once it reduces its debt to $65 billion, down from about $73.5 billion currently. The company plans to hold annual capital expenditures to between $19 billion and $22 billion for the near term. The company is looking to realize about $4 billion per year in asset sales.
Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) lost $680 million in the third quarter, a sharp reversal from earning $3.1 billion in the third quarter of 2019 but an improvement over second-quarter 2020 results, when losses totaled $1.1 billion.
Capital outlays for the quarter fell to $4.1 billion, down from $7.7 billion in the comparable year-earlier period. Capital expenditures through three quarters totaled $16.6 billion, about $6 billion less than the first nine months of 2019, the company reported last Friday. The oil giant expects 2021 capital expenditures to be in the range of $16 billion to $19 billion.
The company posted big losses in its upstream and downstream businesses, but strong performance in the global chemicals business helped to trim net losses. Earnings in that segment rose by $420 million over last year's third quarter to $661 million.
Chevron Corporation (NYSE:CVX) (San Ramon, California): On October 30, the company reported a quarterly loss of $207 million, compared with earnings of $2.6 billion in the comparable year-earlier period. Roughly $408 million of non-operating charges turned a quarterly profit of about $201 million into a quarterly loss of $207 million. The company, which completed its acquisition of Noble Energy last month, also announced that about 25% of Noble's employees would be let go. Its quarterly capital expenditures were down 48%.
Chevron's upstream unit earned about $235 million in the just-completed quarter, down sharply from profits of $2.7 billion in the third quarter of 2019. Downstream earnings sagged to $292 million, from $828 million in the year-earlier period.
On a nine-month basis, the company lost $2.9 billion this year, compared with earning $9.3 billion during last year's first-through-third quarters.
Commenting on the third-quarter results, Michael Wirth, Chevron's chairman and chief executive, said: "Third-quarter results were down from a year ago, primarily due to lower commodity prices and margins resulting from the impact of COVID-19. The world's economy continues to operate below pre-pandemic levels, impacting demand for our products which are closely linked to economic activity."
"We remain focused on what we can control -- safe operations, capital discipline and cost management," he continued. "Compared to last year's third quarter, organic capital expenditures and operating expenses were down 48% and 12%, respectively."
ConocoPhillips (NYSE:COP) (Houston, Texas): On October 29, ConocoPhillips reported a third-quarter 2020 loss of $500 million, compared with third-quarter 2019 earnings of $3.1 billion. Non-operating charges affected earnings for both quarters.
In announcing the financial results, Ryan Lance, ConocoPhillips' chairman and chief executive officer, noted two strategic transactions during the quarter: It completed the acquisition of adjacent acreage in Canada's Montney Shale, and it agreed to acquire Concho Resources in an all-stock deal valued at about $9.7 billion. The latter transaction will expand ConocoPhillips' presence in the Permian Basin.
Lance commented: "The combination with Concho will make us a stronger company by enhancing the quality, scale and stakeholder appeal of ConocoPhillips' successful value proposition, which is based on balance sheet strength, disciplined low cost of supply investments, free cash flow generation, and superior returns of and on capital -- all with a visible commitment to ESG [environmental, social and governmental] excellence. This is the winning formula for our sector and we'll be uniquely positioned to deliver on it through the cycles of our business."
Independent refining companies also had a difficult third quarter, as weak demand squeezed margins.
Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio): The company, which reported earnings on Monday, said it lost $1 billion in the third quarter compared with earning $1.7 billion in the year-earlier quarter. Operating results were impacted by charges and gains in the just-concluded period, including a gain of $456 million from a discontinued business it is in the process of selling. Marathon, like ExxonMobil and Chevron, is in the process of letting staff go.
Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas): The nation's second-largest refiner, after Marathon, Valero posted a third-quarter operating loss of $629 million, compared with operating income of $1.1 billion in the comparable year-earlier quarter. Non-recurring benefits cut net losses for the just-completed period to $575 million.
The refiner said average throughput volume declined by about 15% in the third quarter of 2020 to about 2.5 million BBL/d, from approximately 2.9 million BBL/d in 2019's third quarter.
Joe Gorder, Valero's chairman and chief executive, said demand for gasoline, diesel and jet fuel increased in the third quarter when compared with 2020's second quarter. He said the company was a low-cost producer with ample liquidity, which should help it during the current low-margin environment. For related information, see October 23, 2020, article - Refiner Valero Not Out of Woods Yet, but Picture Brightening.
Phillips 66 (NYSE:PSX) (Houston, Texas): The refiner lost $799 million in the third quarter, a sharp reversal compared with year-earlier earnings of $712 million in the third quarter of 2019. In the second quarter of 2020, Phillips 66 lost $141 million.
During the quarter, the company announced plans to convert its San Francisco Refinery to become the world's largest renewable fuels plant to advance a lower-carbon future. For related information, see November 3, 2020, article - Despite Headwinds, Phillips 66 Rolls Out Projects.
Commenting on third-quarter results October 30, Greg Garland, chairman and chief executive, said: "Our diversified, integrated portfolio helped us navigate a challenging market environment in the third quarter. Our Midstream, Chemicals and Marketing businesses benefited from improved market conditions, while Refining continued to be impacted by weak margins."
Quarterly results were impacted by special items totaling $798 million, mostly tied to the planned conversion of the San Francisco Refinery to a renewable fuels plant.
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