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Shell, Chevron Combined Quarterly Losses Top $25 Billion

Royal Dutch Shell and Chevron led the pack in a slew of quarterly losses with $18.1 billion and $8.3 billion, respectively, coming on the back of lagging demand and record low crude-oil prices brought on by the COVID-19 pandemic. ExxonMobil, ConocoPhillips, Petrobras, and Repsol also posted losses.

One of the bigger oil majors outside the US, Shell, reported a loss of $18.1 billion. The loss included an impairment charge of $16.8 billion, due its revised refining margin outlook on the pandemic and energy market. The company’s adjusted earnings were at $638 million, which was down 82% from Q2 2019. 

Shell said its earnings were underpinned by strong crude and products trading and optimization as well as lower operating expenditure spending.

Looking ahead, Shell said there is still significant uncertainty with COVID-19 and in macroeconomic conditions with an expected negative impact on demand for oil, gas, and related products.

Recent global events and uncertainty in oil supply have caused further volatility in commodity markets. Shell added that demand and regulatory requirements and/or constraints in infrastructure, may cause the company to take measures to curtail or reduce oil and/or gas production, LNG liquefaction, as well as utilization of refining and chemicals plants and sales.

Chevron reported a loss of $8.3 billion. The Q2 posting included impairments and other net charges of $1.8 billion, associated with downward revisions to its price outlook, severance accruals of $780 million, and a gain of $310 million on the sale of Azerbaijan assets.

The company also fully impaired its $2.6 billion investment in Venezuela due to uncertainty associated with the current operating environment and overall outlook.

“The past few months have presented unique challenges,” said Chevron chairman and CEO Michael Wirth. “The economic impact of the response to COVID-19 significantly reduced demand for our products and lowered commodity prices. We reduced our capital budget in response to the current environment and are on track with our commitment to lower operating expense.”

ExxonMobil estimated its losses at $1.1 billion. Its capital and exploration expenditures were $5.3 billion, nearly $2 billion lower than Q1, reflecting previously announced spend reductions

"ExxonMobil’s second quarter results showed the damaging effects of very-low oil and gas prices and the collapse in demand in refined products," said Moody´s senior vice president Pete Speer. "The company had effectively zero operating cash flow and nearly $9 billion of negative free cash flow. With recovery in oil prices and refined products demand, operating costs and capital cuts, and an increased cash balance following debt issuances in the first half of 2020, management expressed confidence that ExxonMobil can avoid further increases in debt."

Oil-equivalent production for the company was 3.6 million B/D, down 7% from Q2 2019, including a 3% decrease in liquids and a 12% decrease in natural gas as a result of weaker global demand and economic and government mandated curtailments.

“The global pandemic and oversupply conditions significantly impacted our second quarter financial results with lower prices, margins, and sales volumes, said company chairman and CEO Darren Woods. “We responded decisively by reducing near-term spending and continuing work to improve efficiency by leveraging recent reorganizations.”

ConocoPhillips reported an adjusted earnings loss of $1 billion and earnings of $300 million. Special items were due to a realized gain on the completion of its Australia-West divestiture, and an unrealized gain on Cenovus Energy equity.

ConocoPhillip’s 6-month 2020 earnings were a loss of $1.5 billion, compared with last year’s 6-month earnings of $3.4 billion. Six-month 2020 adjusted earnings were a loss of $500 million, compared with six-month 2019 adjusted earnings of $2.3 billion.

“Headline second-quarter performance was dominated by weak realized prices, coupled with our rational economic action to curtail production in favor of expected higher future prices,” said ConocoPhillips chairman and CEO Ryan Lance.

Outside the US, Brazilian major Petrobras posted a Q2 loss or 2.7 billion reais ($524 million) due to lower oil prices. Despite the loss, Petrobras ended the quarter with a recurring EBITDA $3.4 billion reais and free cash flow of $3 billion reais, showing operations proceeded steadily with enough balance to ensure its liquidity, even with a 42% reduction in Brent oil prices and weak internal demand.

Spain’s Repsol posted an estimated loss of EUR 2 billion ($2.4 billion), and an adjusted loss of EUR 258 million, mainly due to impairments from its upstream segment and inventory.

Outlooks for Q3

ExxonMobil’s Woods said they do not plan to take on any additional debt. Considering the progress made to date, the company is confident it will meet or exceed cost-reduction targets for 2020, providing a foundation for further efficiencies. Woods added the company increased debt to a level they feel appropriate to provide liquidity, given market uncertainties.

Chevron’s Wirth said his company’s financial results may be depressed into Q3, as demand and commodity prices have not returned to pre-pandemic levels.

Lance said ConocoPhillips is monitoring the market closely to develop a view around the timing and path of price recovery and to guide their actions. Lance added as the market strengthened late in Q2, the company began reversing Q2 curtailments and ramped up production across the Lower 48, Alaska, and Canada.

Repsol said it plans to cut operating costs by €450 million ($530 million) in 2020 and reduce capital expenditure by the end of 2020 by another €100M, totaling a cut of €1.1 billion.

Shell, Chevron Combined Quarterly Losses Top $25 Billion

Brian Balboa, Associate Editor

31 July 2020

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