All is not well with major players in the oil and gas industry as ExxonMobil, the second-largest publicly traded oil and gas company has warned of a decline in its fourth quarter result on the back of a projected loss in chemicals and lower profit in refining, two of its three major business segments.
The oil-giant in its fourth-quarter result s expectation filling noted that operating profit in its largest business, oil and gas production, could be $2.3 billion based on the midpoint of its estimate, up from the third quarter but down from a year ago.
The good news however is the gains of as much as $3.6 billion from the sale of its Norwegian oil and gas production, part of a plan to divest about $15 billion in assets by 2021, offsetting the weak result for the year.
In its third-quarter result released recently, Exxon Mobil earned $3.2 billion in the third quarter, down from $6.2 billion, a 49percenr drop on lower oil prices and higher costs.
Exxon Mobil joins a list of oil-giants who have predicted a contraction in earnings amid a disappointing demand outlook. Royal Dutch oil giant, Shell announced that it plans to write down up to $2.3billion in the fourth quarter, an impairment of $500-600 million from deferred taxes and another $100-200 million from well decommissioning.
Also, Chevron announced on December 13 that it is writing down the value of its assets by more than $10 billion, a concession that in an age of abundant oil and gas some of its holdings won’t be profitable anytime soon. According to the oil-giant, the write-downs this quarter are related to a deepwater Gulf of Mexico project, which needs higher oil prices to churn a profit, and shale gas in Appalachia, which has suffered from low natural gas prices. It is considering selling its stake in a cultural region in the Eastern United States Appalachia shale and the proposed Kitmat LNG project in Canada.
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Spanish energy giant Repsol also announced a $5.3 billion write-down of its assets while also pledging to be carbon-neutral by 2050. The announcement comes after Repsol set a goal of becoming a leading international player in renewable energies.
Likewise, US-based Schlumberger took a massive $12.7 billion write-down in October, largely due to the slowdown in shale drilling, while British Petroleum (BP) also wrote down $2.6 billion in assets in October.
“Part of the reason why companies are increasingly acknowledging the likelihood of lower long-term prices is because of the energy transition which is a worrisome trend for oil companies,” Emmanuel Afimia, an energy analyst and CEO of Afimia Consulting Limited said.
US-based Institute for Energy Economics and Financial Analysis (IEEFA) said in a report that the write-down is also an indictment of shale gas drilling in Appalachia as low prices and a track record of not producing any profits have soured investors in the sector.
A recent analysis by IEEFA found that the seven largest Appalachian gas drillers burned through half a billion dollars in the third quarter.
“Despite booming gas output, Appalachian oil and gas companies consistently failed to produce positive cash flow over the past five quarters,” the authors of the IEEFA report said
Nigeria, Africa’s largest oil producer, is still dependent on the oil sector for 90 percent of its foreign exchange earnings. The country has Africa’s second-largest oil reserves with estimated known reserves of 37 billion barrels of oil and 202 Tcf of proven gas reserves.
Globally, there is a paradigm shift from fossil fuels to electric cars with many advanced countries considering a ban on the sale of gasoline-powered cars. If this trend continues, there would be a reduction in Nigeria’s oil revenue which will have an adverse effect on the exchange rate; oil companies may lay off workers, debt profile may increase while a sick government balance sheet looms.
