Oil companies support Brutal 2020, warning of the slow recovery of 2021

Exxon recorded its fourth consecutive quarterly loss for the first time in modern history, driven by a cleanup of more than $ 19 billion. Excluding the impairment, Exxon made a quarterly profit of $ 110 million.

BP reported a replacement cost benefit, a metric similar to the net revenue figure reported by U.S. oil companies, of $ 825 million during the three months ended December 31, due to a loss of $ 4 million in the previous period.

Covid-19 has undermined demand for oil, slashed prices and caused the world’s largest energy companies to cut spending, cut jobs and write off the value of their assets. In the midst of the crisis, Exxon and Chevron last year discussed a merger of U.S. oil giants, according to people familiar with the matter, though talks did not move forward.

“Last year presented the toughest market conditions Exxon Mobil has experienced,” said Darren W. Woods, chief executive.

Exxon continues to be pressured by a couple of activist investors. One of them, Engine No. 1 LLC, last week appointed four directors to Exxon’s board and asked it to make strategic changes to its business plan. On Tuesday, Exxon announced that it had chosen a new independent director for its board and is continuing discussions with other candidates for director.

Engine number 1 said the changes were insufficient.

“A board that has overcome this dramatically and challenged shareholder sentiment for a long time has not earned the right to elect its own new members or to pack in the face of change requests,” the engine said number 1 in a statement. “Exxon Mobil shareholders deserve advice that works proactively to create long-term value, not defensively in the face of deteriorating returns and the threat of losing their seats.”

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

Still, chief executive Bernard Looney said the company expects demand to stabilize this year, though the speed and degree of recovery is uncertain.

“It all depends on vaccine deployment, vaccine effectiveness, and OPEC compliance,” Looney said. Unlike his American counterparts, Looney said BP had not spoken to any of its peers about mergers and was focused on executing its strategy to pivot toward low-carbon energy.

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

Other oil companies are also feeling the tension. Royal Dutch Shell RDS.A -1.06%

PLC reports on Thursday and has telegraphed that it will do a major analysis.

The pandemic has already triggered the biggest revision in the value of oil and gas assets in at least a decade, as companies benefit from costly projects amid the prospect of low prices for years. Exxon’s more than $ 19 billion depreciation, primarily related to U.S. shale gas assets, is one of the largest in the industry.

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

Exxon plans to invest as much as $ 25 billion a year in capital spending by 2025, but said Tuesday that if Brent crude oil prices fell below $ 45 a barrel, the company could cut spending even further. . The company said it expects to cover its dividend, which costs it about $ 15 billion a year, from its cash flow by 2021, assuming Brent is $ 50 a barrel. It was trading at about $ 56 on Tuesday.

Activist investor Engine No.1 has argued that Exxon should focus more on clean energy investments, while reducing costs elsewhere to preserve its dividend. However, Exxon and its rival Chevron have not established plans to invest substantially in renewable energy, but have opted to double oil and gas. Both companies have argued that the world will need large amounts of fossil fuels over the next few 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 technologies to reduce carbon emissions, investing about $ 3 billion by 2025, primarily in carbon capture projects, which bring together carbon emissions from processes. industrial or directly from the air and deposit them underground.

BP has suggested that the demand for fossil fuels would never fully recover and that the pandemic could accelerate the pace of transition to a lower-carbon economy.

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

French energy giant Total SE TOT -0.44%

it has also outlined plans to build its renewables business, while Shell has signaled its intention to set a similar path later this month.

“An unprecedented collapse in demand has forced Big Oil’s hand to resize its dividends and capital frameworks; in the meantime, energy transition plans have been accelerated, ”said Christyan Malek, an analyst at JPMorgan.

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

Rebecca Fitz, senior director of the Boston Consulting Group, said she believes both European and American strategies can work, but both need to get better returns and produce less carbon to be pleasing to investors.

“When you have less capital, the options on how to allocate that capital are stronger,” Ms. Fitz.

—Allison Prang contributed to this article.

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