Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Oil majors wipe $80 billion off books as epidemic, energy transition bite

Published 01/12/2020, 12:44
Updated 01/12/2020, 12:45
© Reuters. FILE PHOTO: An Exxon gas station is seen in Houston

© Reuters. FILE PHOTO: An Exxon gas station is seen in Houston

By Ron Bousso

LONDON (Reuters) - The world's top energy companies have slashed the value of their oil and gas assets by around $80 billion (60.05 billion pounds) in recent months after revising lower the long-term outlook for fuel prices in the wake of the coronavirus epidemic and the energy transition.

Exxon Mobil (NYSE:XOM), the largest U.S. oil company, announced on Monday it would write down the value of natural gas properties by $17 billion to $20 billion, its biggest ever impairment following the sharp drop in energy prices this year.

It follows similar steps by rivals including Royal Dutch Shell (LON:RDSa), BP (LON:BP) and Chevron (NYSE:CVX) since late 2019.

For graphic of Downsizing: https://graphics.reuters.com/OIL-WRITEDOWNS/qmypmxlrovr/chart.png

The so-called oil majors are "acknowledging overly optimistic commodity price views of yesteryear," said Bernstein analyst Oswald Clint.

Most of Exxon's impairments focused on legacy assets from its $30 billion acquisition of U.S. shale producer XTO Energy in 2010, a deal former CEO Rex Tillerson had previously said was "ill-timed."

Following the impairments, companies will focus on the parts of the business that are able to withstand the lowest oil and gas prices, Clint said.

"Balance sheets now reflect the lowest portfolio break-evens in two decades and therefore the most resilient to future commodity price shocks."

Exxon did not disclose its new commodity price outlook. The value of the oil majors plummeted in 2020 after energy demand collapsed due to the pandemic.

The shares of Exxon, Shell and BP have lost over 45% so far this year, more than benchmark Brent oil prices that have lost around 27% and stand today near $48 a barrel.

The impairments made by the European majors also came after they lowered their long-term oil prices forecasts as they prepare to increasingly switch to renewable energy in the coming decades to reduce carbon emissions to net zero.

The revisions might nevertheless lead to a sharp rise in oil prices in the coming years as a result of lower investments in new projects, Clint said.

© Reuters. FILE PHOTO: An Exxon gas station is seen in Houston

"We're staring into the abyss when it comes to supply and demand balances due to a dearth of much needed capital investment."

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.