The Coronavirus pandemic has taken a wreaking ball to the finances of big oil companies and now they are clawing back on costs, reallocating resources and diversifying investments to ride out this storm.
Chevron, which, last Friday reported its second straight quarter of losses after revenue during the third quarter fell 32 percent year over year, losing $207 million, is to keep a tighter lid on costs.
Chevron said its capital spending declined 48 percent and its operating expenses were down 12 percent. It could go further.
Michael Wirth, chairman and CEO of Chevron said in a statement. “We remain focused on what we can control — safe operations, capital discipline and cost management,”
Though a common strategy by players, its too easy to cut to the bones harming new growth opportunities.
During the third quarter, net oil-equivalent production declined 7 percent year over year to 2.83 million barrels per day as the company scaled back its operations in response to low commodity prices and lower demand.
ExxonMobil
The company last week reported a third-quarter loss of $680 million following its largest-ever loss of $1.1 billion in the second quarter of 2020.
The company believes it is seeing early stages of recovery and is betting on projects in Guyana.
“We remain confident in our long-term strategy and the fundamentals of our business and are taking the necessary actions to preserve value while protecting the balance sheet and dividend,” said Darren Woods, Chairman and CEO.
“We are on pace to achieve our 2020 cost-reduction targets and are progressing additional savings next year as we manage through this unprecedented down cycle.”
ExxonMobil could slash capital expenditure spend to aromd $16 billion – $19 billion, a reduction from the 2020 target of $23 billion announced in April.
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This inevitably translates to job losses. The company plans to rid 15 percent of its workforce by 2022 across its operations around the world.
It continues to bet the house on Guyana. “We continue to progress industry advantaged developments in Guyana with the FID [Final Investment Decision] of Payara,” said Stephen Littleton, Vice President, Investor Relations, speaking on the Q3 earnings call. “In addition, we announced two new discoveries on the Stabroek Block – Yellowtail and Redtail – marking our 17th and 18th discoveries in Guyana.”
Payara is the company’s third biggest project in the Stabroek Block and will have the capacity to produce up to 220,000 oil-equivalent barrels per day after expected startup in 2024.
ExxonMobil said given the high-quality opportunities in its portfolio and the constraints of the current market environment, it is assessing its full portfolio to prioritize assets with the highest value potential within its broad range of available opportunities.
Royal Dutch Shell
Shell last week announced a cash allocation framework that will enable it to reduce debt, increase distributions to shareholders, and allow for disciplined growth as it reshapes its business for the future of energy.
Shell is betting on low-carbon businesses as well as increasing shareholder distributions.
The cash allocation framework includes a target to reduce net debt to $65 billion (from $73.5 billion as of September 30, 2020) – and, on achieving this milestone, a target to distribute a total of 20-30% of cash flow from operations to shareholders, the company said in a statement.
It further said that Increased shareholder distributions will be achieved through a combination of its progressive dividend and share buybacks. Remaining cash will be allocated to disciplined and measured capex growth and further debt reduction, targeting AA credit metrics through the cycle.
Shell has ambition to become a net-zero energy emissions business by 2050 or sooner, in step with society and its customers and this could yet prove to be a winning hand.
“Our sector-leading cash flows will enable us to grow our businesses of the future while increasing shareholder distributions, making us a compelling investment case,” said Royal Dutch Shell Chief Executive Officer, Ben van Beurden.
Total
Total seemed best positioned to ride out the storm. The company posted third-quarter profit that exceeded the highest analyst estimate, paying down debt and maintaining a generous dividend.
But it is not yet uhuru for the French energy giant. Soon after it boasted that it could weather $40 oil, prices fell below that benchmark on account of uptick in COVID19 cases in Europe.
Third-quarter adjusted net income was $848 million, down 72% from a year earlier but well above the average analyst estimate of $478 million.
Total’s approach of spending cuts and investing in low-cost barrels is paying off and it would sustain it. Its upstream operating expenditure has dropped by half since 2014 to $5 a barrel, which Total says is the lowest among the five supermajors.
Despite a bleak period for refining, the company’s downsteram investments too are paying off reporting profit from oil and gas production and gasoline sales at service stations.
