Oil Coys Q1 Results Paint Picture of a Troubled Sector
The First Quarter (Q1) report from various oil and gas companies reaffirmed the difficult situation the energy companies are dealing with as a result of the slump in oil price as well as the COVID-19-induced disruptions to energy demand.
The Q1 of 2020 saw extraordinary volatility in the oil and gas industry leaving many balance sheets in the negative as their profit margins dropped from 50 to 67 per cent.
For example, BP’s net profit dropped 67%, ConocoPhillips reported a Q1 loss of $1.7bn, and Royal Dutch Shell reduced dividends by 65% – the first cut for the company since World War II. Sinopec recorded a $2.71bn loss despite fuel sales rebounding.
ExxonMobil, the US’s biggest oil company, suffered a loss of $610m for the first quarter of the year. This represents a sharp reversal from a $2.4bn profit a year earlier.
Chevron Corporation (NYSE: CVX) on Friday reported earnings of $3.6 billion ($1.93 per share – diluted) for first quarter 2020, compared with earnings of $2.6 billion ($1.39 per share – diluted) in the first quarter of 2019.
In response to the prevailing situation, the company said it would reduce its 2020 capital spending plans by an additional $2 billion, to $14 billion, adding that it expects operating expenses to fall by $1 billion.
In March, the company had previously announced a 20% cut to its capital spending plan — from $20 billion to $16 billion — and said it was suspending its stock buyback program in an effort to reduce costs.
An analyst at GlobalData, Ella Benson Easton, said: “These numbers confirm the strain the oil and gas industry is under. The real difficulty situation for the industry is gaining a degree of stability, particularly given the uncertainty around the full impact of the pandemic on things such as customer behaviour and investment priorities.
“Some oil companies have touted more sustainable investments and principles in recent years. Both Shell and BP aim to reach net-zero carbon emissions by 2050. The recently exposed instability in the oil industry makes a speedy transition to sustainable energy a necessity.
“Sustainability will remain a key theme for enterprises across industry sectors well beyond COVID-19.
According to Easton GlobalData’s sustainability framework shows the areas in which companies need to focus their investment to put themselves in a position to succeed.
“Increased investment in renewable energies and modern technologies are now vital as oil companies insulate themselves against further price shocks.
“Oil companies that diversify their investments and invest in the sustainability theme will be better placed to survive the long-term effects of the current crisis,” she said.