Oil companies endure brutal 2020, warns against slow recovery of 2021

Exxon showed the fourth consecutive quarterly loss for the first time in modern history, driven by a write-off of more than $ 19 billion. Excluding impairment, Exxon reported a quarterly profit of $ 110 million.

BP reported a replacement cost gain – a measure similar to the net revenue figure reported by US oil companies – of $ 825 million for the three months ended December 31, from a loss of $ 4 million in the previous year.

Covid-19 has weakened demand for oil, pushing up prices and urging the world’s largest energy companies to cut spending, cut jobs and write down the value of their assets. Amid the crisis, Exxon and Chevron discussed a merger of the US oil giants last year, according to people familiar with the matter, although the talks did not progress.

“The past year has presented the most challenging market conditions that Exxon Mobil has ever experienced,” said CEO Darren W. Woods.

Exxon is still under pressure from some activist investors. One of them, Engine No. 1 LLC, last week nominated four directors on Exxon’s board of directors and called for it to make strategic changes to its business plan. Exxon announced on Tuesday that it has elected a new independent director to its board and is continuing talks with other directorial candidates.

Engine no. 1 said that the changes were insufficient.

“A board that has dramatically underperformed through this and defied the sentiment of shareholders for so long did not deserve the right to elect its own new members or tackle themselves in the face of calls for change,” said Engine No. 1 said in a statement. “Exxon Mobil shareholders deserve a board that works proactively to create long-term value, not defensively amid declining returns and the threat of losing their seats.”

BP said on Tuesday that Covid-19 restrictions will continue to weaken demand in early 2021 and that the pandemic could have a lasting impact on the world economy, with the possibility that energy demand will be weaker for a long time .

However, CEO Bernard Looney said the company expects demand to stabilize this year, although the speed and extent of the recovery is uncertain.

“It all depends on the vaccination of the vaccine, the effectiveness of the vaccine and compliance with OPEC,” Looney said. Unlike his American counterparts, Looney said that BP had not spoken to any of its counterparts about mergers, and that it was focused on implementing its strategy to be low in carbon.

BP’s shares traded 3.1% lower in London on Tuesday as results fell below analysts’ expectations. Exxon was slightly higher in the market on Tuesday due to its results.

Other oil companies are also feeling the strain. Royal Dutch Shell RDS.A -0.96%

PLC reported Thursday and telegraphed that it would require a large write-off.

The pandemic has already caused the biggest revision of the value of oil and gas assets in at least a decade, as companies sour on expensive projects amid the prospect of low prices for years. Exxon’s write-off of more than $ 19 billion, mainly related to US shale gas assets, is one of the largest in the industry.

The Irving, Texas-based company, cut nearly $ 12 billion of its 2020 capital expenditure and $ 8 billion in operating expenses in response to the pandemic, saying it would reduce operating expenses by another $ 3 billion by 2023.

Exxon plans to spend as much as $ 25 billion a year on capital spending by 2025, but said Tuesday that if Brent crude oil prices fall below $ 45 a barrel, the company could cut spending further. The company said it expects to cover its dividend, which costs about $ 15 billion annually, from its cash flow in 2021, if Brent is $ 50 a barrel. It traded around $ 56 on Tuesday.

Activist investor Engine No.1 argued that Exxon should focus more on investing in clean energy, while reducing costs elsewhere to maintain its dividend. However, Exxon and its rival Chevron did not plan to invest significantly in renewable energy, but rather to double oil and gas. Both companies have argued that the world still needs large amounts of fossil fuels for decades, and that they could benefit from the current underinvestment in oil production.

On Monday, Exxon said it would form a business unit that focuses exclusively on carbon-emitting technologies, and will invest $ 3 billion by about 2025, mainly on carbon capture projects, which collect and deposit carbon emissions from industrial processes or directly from the air. their underground.

BP has suggested that demand for fossil fuels will never fully recover and that the pandemic could accelerate the pace of transition to a lower carbon economy.

Under Mr. Looney has started a plan for BP to reduce its dependence on oil and gas, while increasing investments in low-carbon energy such as wind and solar.

French energy giant Total SE TOT -0.48%

He also outlined plans to build his renewable business, while Shell showed his intention to follow a similar path later this month.

” An unparalleled collapse in demand has forced Big Oil to straighten out their dividends and capital framework; meanwhile, plans for energy transition have been accelerated, ”said Christyan Malek, an analyst at JPMorgan.

To bolster its finances, BP sold assets to reduce debt. The company said it was now more than halfway through its $ 25 billion asset sales target by 2025, which was helped on Monday by the sale of a 20% stake in a gas development in Oman. BP aims to reduce its debt to $ 35 billion by the first quarter of next year, from $ 39 billion at the end of 2020.

Rebecca Fitz, senior director of Boston Consulting Group, said she thinks European and US strategies can work, but both need to deliver better returns and produce less carbon to be attractive to investors.

“If you have less capital, the choices about how to allocate the capital are stronger,” she said. Fitz said.

—Allison Prang contributed to this article.

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