Oil companies support Brutal 2020, warns of slow return in 2021

Exxon recorded its fourth consecutive quarterly loss for the first time in modern history, driven by a $ 19 billion cut. Excluding depreciation, Exxon posted a quarterly profit of $ 110 million.

BP reported a replacement cost – similar to net income from 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 lowered oil demand, reaching prices and causing the world’s largest energy companies to cut spending, cut jobs and value their assets. Amid the crisis, Exxon and Chevron discussed a merger of US oil giants last year, according to people familiar with the issue, although talks have not progressed.

“Last year saw the most difficult market conditions Exxon Mobil has ever experienced,” said CEO Darren W. Woods.

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

Engine no. 1 said the changes were insufficient.

“A board that has dramatically performed this sentiment and defied shareholders’ sentiment for a long time has not earned the right to elect its own new members or pack in the face of demands for change,” said Engine No. 1 in a statement. “Exxon Mobil shareholders deserve a board that works proactively to create long-term value, not defensively in the face of deteriorating yields and the threat of losing their seats.”

BP said on Tuesday that Covid-19 restrictions will continue to reduce demand in early 2021 and that the pandemic could have a lasting impact on the global economy, with the potential for lower energy demand for a sustained period.

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

“It all depends on the launch of the vaccine, the effectiveness of the vaccine and OPEC compliance,” said Mr Looney. Unlike his US counterparts, Mr Looney said BP had not spoken to any of his colleagues about mergers and focused on implementing its low-carbon energy pivoting strategy.

BP shares traded 3.1% lower in London on Tuesday as analysts fell short of analysts’ expectations. Exxon rose slightly premarket on Tuesday after its results.

Other oil companies are also feeling the tension. Royal Dutch Shell RDS.A -0.90%

PLC reports on Thursday and telegraphed that it will take a significant reduction.

The pandemic has already triggered the biggest revision in the value of oil and gas assets in at least a decade, as companies operate on expensive projects against the prospect of low prices for years. Exxon’s $ 19 billion downgrade, primarily related to shale gas assets in the United States, is among the largest ever taken over by the industry.

The Irving, Texas-based company cut nearly $ 12 billion in capital expenditures by 2020 and $ 8 billion in operating costs in response to the pandemic and said Tuesday it will cut operating expenses by another $ 3 billion by 2023 .

Exxon plans to spend $ 25 billion a year on capital spending by 2025, but said Tuesday that if Brent 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 2021 cash flow, assuming Brent is $ 50 a barrel. It was trading around 56 USD on Tuesday.

Activist Engine No.1 investor argued that Exxon should focus more on investing in clean energy, while reducing costs elsewhere to keep its dividend. However, Exxon and rival Chevron have not established substantial investment plans in renewable sources, instead choosing to double oil and gas. Both companies have argued that the world will need large amounts of fossil fuels in the coming decades and that they can capitalize on the current underinvestment in oil production.

On Monday, Exxon said it would form a business unit focused exclusively on carbon reduction technologies, investing about $ 3 billion by 2025, mainly in carbon capture projects, which collect carbon from industrial processes. or directly from the air and store them underground.

BP suggested that the demand for fossil fuels may never fully recover and that the pandemic could accelerate the transition to a low-carbon economy.

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

The French energy giant Total SE TOT -0.43%

also presented plans to grow its renewable energy business, while Shell signaled its intention to set a similar path later this month.

“An unprecedented collapse in demand has forced Big Oil to properly increase its dividends and equity; in the meantime, plans for the energy transition have been accelerated, ”said Christyan Malek, an analyst at JPMorgan.

To strengthen its finances, BP sold assets to reduce its debt. The company said it has now reached more than half of its $ 25 billion asset sales target by 2025, helped on Monday by the sale of a 20% stake in Oman’s gas development. BP aims to reduce its debt to $ 35 billion by the first quarter of next year, down from $ 39 billion by the end of 2020.

Rebecca Fitz, senior director at Boston Consulting Group, said she believes both European and US strategies can work, but both need to provide better returns and produce less carbon to please investors.

“When you have less capital, the choices about how you allocate that capital are stronger,” Ms. Fitz said.

“Allison Prang contributed to this article.”

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