By Christopher M. Matthews and Sarah McFarlane
Major oil companies signaled they remain under extreme financial
pressure and oil prices slid Thursday as demand for fossil fuels
rebounds slowly after being crushed by the coronavirus
Despite a modest economic recovery, oil-and-gas companies are
being hammered by a sustained drop in consumption of gasoline and
jet fuel as millions of people work from home and avoid driving and
flying. That is combining with longer-term concerns about future
competition from renewable energy and electric vehicles to drag
down the value of many oil and gas companies to decade lows.
A stock index of U.S. oil-and-gas companies is down about 55% in
2020 even as the overall stock market is up slightly. On Thursday,
the share prices of Royal Dutch Shell PLC and BP hit fresh
25-year-lows, and Exxon Mobil Corp. and Chevron Corp. also dropped.
U.S. crude prices fell to around $38 a barrel Thursday afternoon,
levels at which most companies cannot produce profitably.
Exxon and Shell said this week that key parts of their business
continued to struggle through the summer and early fall, which will
weigh down the third quarter results they are set to report in
Exxon warned Thursday that it expected earnings from its oil
production unit to improve by as much as $1.8 billion from the
second quarter, but that its natural gas sales and its refining
business could lose more money. Analysts forecast a quarterly loss
of more than $500 million when the company reports on Oct. 30,
which would mark its third consecutive quarter in the red.
Shell said Wednesday it would cut up to 9,000 jobs in a broad
restructuring, and warned it was also poised to report poor
third-quarter earnings, including a second consecutive quarterly
loss in its oil-and-gas production business. The planned job cuts
follow similar moves at peers including BP PLC and Chevron Corp. to
rein in costs amid the pandemic. Exxon has said it is conducting a
workforce review, which might lead to layoffs.
This lousy oil-and-gas earnings this year have turned off many
investors, who remain unenthusiastic about the sector despite a
modest rebound in crude prices from the historic lows of this
Smaller, independent players continue to face a struggle for
survival. On Wednesday, Houston-based shale driller Oasis Petroleum
Inc. filed for chapter 11, joining at least three dozen other North
American oil-and-gas producers in seeking bankruptcy protection
this year, according to law firm Haynes and Boone LLP.
"Due to historically low global energy demand and commodity
prices, we determined that it is best for Oasis Petroleum to take
decisive action to strengthen our liquidity and overcome the
headwinds now challenging both our company and industry," Oasis
Chief Executive Thomas Nusz said in a statement.
As the number of global Covid-19 infections continue to rise,
the return of restrictions that could reduce the number of cars on
the road and overall economic activity is leading to market
pessimism that oil demand will take a long time to recover.
Russia's energy ministry has said it doesn't expect a fast
recovery, while Vitol Group, the world's biggest independent oil
trader, said earlier this week it doesn't expect oil prices to rise
"The demand side of the equation will continue to be under
threat during the fourth quarter of the year, with Covid-19 cases
rising at an alarming rate, notably in Europe, which has already
imposed new restrictions to curve down the number of cases," said
Paola Rodriguez-Masiu, an analyst at Rystad Energy.
Rystad expects around 150 additional North American oil and gas
producers to file for bankruptcy by the end of 2022 if crude prices
remain around $40 a barrel.
The U.S. is now generating fewer than 11 million barrels of oil
daily, down from around 13 million barrels a day early this year,
Energy Information Administration data show. Two-thirds of
oil-and-gas executives who responded to a recent survey by the
Federal Reserve Bank of Dallas said they think U.S. oil production
will never fully recover.
Meanwhile, domestic consumption of gasoline and distillates
including diesel remains depressed, down roughly 9% from a year
ago, according to the EIA. That is weighing on refiners such as
Marathon Petroleum Corp., which said Wednesday that it was laying
off some 2,000 employees. Many of those cuts are tied to the
company's recent decision to keep two of its refineries idled
indefinitely. In all, Marathon Petroleum is cutting around 12% of
its jobs, excluding roles at its Speedway gas station chain, which
7-Eleven Inc. has agreed to buy.
For major oil companies with large liquefied-natural-gas
businesses, analysts expect weaker margins. LNG is sold via
long-term contracts where prices are often linked to oil with a
time lag of three to six months. That means the fall in oil prices
earlier this year reached LNG only during the third quarter.
"The macro environment certainly was very difficult, and
profitability will have deteriorated in refining and LNG," said
Irene Himona, an analyst at Société Générale who expects another
tough quarter for major oil companies.
Longer-term doubts are also clouding the industry's outlook. BP
said in September that global oil demand could have already peaked
and that it would potentially never recover to pre-pandemic
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 U.S. shale companies remain
committed to oil and gas.
Dan Pickering, chief investment officer of Pickering Energy
Partners LP, said that 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. It may turn
into a no-growth to a declining business for a long time," Mr.
Still, some executives are hopeful that the reduced investment
in oil and gas production this year will result in higher oil
prices in future. Total SA has drawn up a 10-year investment plan
based on a $50 a barrel price for the Brent crude oil benchmark. On
Thursday, Brent oil traded for around $41 a barrel.
"We are at $40 in the middle of a huge crisis where we have seen
a big oversupply and a huge lack of demand," Total Chief Executive
Patrick Pouyanne told investors this week. "I am sure that in two
to three years we will see higher prices and forget like we have
done in the last five years," he added.
Rebecca Elliott contributed to this article.
Write to Christopher M. Matthews at firstname.lastname@example.org
and Sarah McFarlane at email@example.com
(END) Dow Jones Newswires
October 01, 2020 14:59 ET (18:59 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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