Epidemic pain persists for big oil companies

Major oil companies indicated they are under extreme financial pressure and oil prices have slowed as demand for a fossil fuel uprising began on Thursday, after being crushed by the coronovirus epidemic.

Despite the slight economic recovery, the continued decline in gas and jet fuel consumption is causing losses to oil and gas companies as millions work from home and avoid driving and flying. It is pulling the price of many oil and gas companies to a decade low with long-term concerns about future competition from renewable energy and electric vehicles.

A stock index of US oil and gas companies is down about 55% in 2020, with the overall stock market up slightly. On Thursday, Royal Dutch Shell RDS share prices -3.85%

PLC and BP hit fresh 25-year lows and Exxon Mobil Corp.

XOM -3.76%

And chevron Corp.

Also dropped. US crude prices fell to around $ 38 a barrel on Thursday afternoon, a level at which most companies cannot produce profitably.

Exxon and Shell said this week that major parts of their business continued to struggle through the summer and early fall, which would reduce the results for the third quarter scheduled to report in the coming weeks.

Exxon warned on Thursday that it expected its oil production unit to improve as much as $ 1.8 billion by the second quarter, but that it could lose more money from its natural gas sales and its refining business. Analysts say that when the company reports on October 30, it estimates a quarterly loss of more than $ 500 million, which would mark the third consecutive quarter in red.

Shell said a comprehensive restructuring on Wednesday would cut 9,000 jobs, and warned that it was set to report poor third-quarter earnings, including a second consecutive quarterly loss in its oil and gas production business. Planned job cuts follow similar moves on peers including BP plc and Chevron Corp.

Cost control in the midst of an epidemic. Exxon has said it is conducting a workforce review, which could lead to layoffs.

Oil and gas earnings this year have turned down many investors, who remain adamant about the sector, despite a slight rebound in crude prices from the historical lows this spring.

Smaller, independent players face the struggle to survive. On Wednesday, Houston-based shell driller Oasis Petroleum Inc.

According to law firm Haynes & Boon LLP, this year filed for Chapter 11 involving at least three dozen other North American oil-and-gas producers seeking bankruptcy protection.

Oasis Chief Executive Thomas Nussus stated, “Because of historically low global energy demand and commodity prices, we determined Oasis Petroleum to overcome our headwinds to strengthen liquidity and challenge both our company and the industry.” It’s the best to do. ” Statement.

As the number of global Kovid-19 transitions continues to rise, the withdrawal of sanctions could reduce the number of cars on the road and overall economic activity leading to market pessimism that oil demand will take longer to recover. Russia’s Ministry of Energy has said it does not expect a rapid recovery, while the world’s largest independent oil trader Vitol Group said it did not expect oil prices to rise until 2021 early this week.

“The demand side of the equation will be under threat during the fourth quarter of the year, with Kovid-19 cases growing at an alarming rate, particularly in Europe, which has already imposed new sanctions to reduce the number of cases , Said Paula Rodriguez-Macieu, analyst at Rosta Energy.

If crude oil prices hover around $ 40 a barrel by the end of 2022, Ristad expects about 150 additional North American oil and gas producers to file for bankruptcy.

The US is now producing 11 million barrels of oil daily, down from about 13 million barrels earlier this day, the Energy Information Administration Administration shows. Two-thirds of oil-gas executives who responded in a recent survey by the Federal Reserve Bank of Dallas said they felt that US oil production would not fully recover.

Meanwhile, according to the EIA, household consumption including gas and distillate consumption including diesel are down by about 9% compared to a year ago. It weighs on refiners like Marathon Petroleum Corp.

, Which on Wednesday said it is retrenching some 2,000 employees. Many of those cuts are tied to the company’s recent decision to keep two of its refineries inactive indefinitely. All in all, Marathon Petroleum is cutting jobs by about 12%, except for roles in its Speedway gas station chain, which 7-Eleven Inc. has agreed to buy.

Refiners are among the oil and gas businesses that have come under pressure this year.


Luke McGregor / Bloomberg News

For major oil companies with large liquefied-natural-gas businesses, analysts expect weak margins. LNG is sold through long-term contracts where prices are often linked to oil with a time interval of three to six months. This means that the fall in oil prices earlier this year reached LNG only during the third quarter.

“The macro environment was certainly very tough, and profits will deteriorate in refining and LNG,” said Irene Himona, an analyst at Societe Generale, who expects another tough quarter for major oil companies.

Long-term skepticism is also influencing industry outlook. BP said in September that global oil demand could already be at its peak and would likely not recover from pre-epidemic levels.

BP, Shell and other major European fossil-fuel companies have said they plan to invest heavily in renewable energy over the next decade. Exxon, Chevron and most US shale companies are committed to oil and gas.

The abundance of fossil fuels combined with advances in technology to use wind and solar energy has sent energy prices to crash worldwide. The WSJ describes how it all happened at once. Photo Illustration: Carlos Waters / WSJ

Dan Pickering, chief investment officer at Pickering Energy Partners LP, said the industry has lost some investors over concerns about the energy transition, even though the world will need large amounts of oil and gas for decades to come.

“It has been a slow growth business for a long time. This can turn into growth for a declining business for a long time, ”Mr. Pickering said.

Nevertheless, some officials expect lower investment in oil and gas production this year to result in higher oil prices in the future. The total SA

Brent Crude Oil has prepared a 10-year investment plan for the benchmark at a price of $ 50 per barrel. Brent oil traded at around $ 41 a barrel on Thursday.

Total Chief Executive Patrick Poyne told investors this week that we are in the midst of a major crisis at $ 40, where we have seen a major oversight and a huge reduction in demand. “I am sure in two to three years we will see higher prices and forget what we have done in the last five years,” he said.

Write Christopher M. Matthews Christopher at [email protected] and Sarah McFarlane at [email protected]

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