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NorthAmOil COMMENTARY NorthAmOil

Second-quarter losses pile up

The earnings season is in full swing, and North American oil and gas

producers across the board are reporting second-quarter losses as expected,

with majors not immune to the trend

NORTH AMERICA THE earnings season is well underway, and as quarter. The write-downs included the compa-
expected, second-quarter losses are piling up ny’s entire investment in Venezuela, owing to
WHAT: among North America’s oil and gas producers. uncertainty over the operating environment,
Majors and independents The industry downturn began at the end of the and a bleak overall outlook. Chevron is the last
alike are reporting first quarter, worsening significantly as a brief oil major US oil company operating in Venezuela,
second-quarter losses. price war between Russia and Saudi Arabia was but it has been told by the government of US
compounded by a collapse in energy demand President Donald Trump to wind down its busi-
WHY: owing to the coronavirus (COVID-19) pan- ness there.
The collapse in oil prices demic. April is widely considered to have been Other write-downs of oil and gas properties
and energy demand has the industry’s lowest point, with West Texas affected non-shale operations in the Permian
taken a considerable Intermediate (WTI) prices briefly dropping into Basin, offshore Gulf of Mexico fields and unspec-
toll on North America’s negative territory. And while the downturn is by ified properties outside the US, according to
producers. no means over, producers are hoping that the comments made to Reuters by Chevron’s chief
second quarter will be their worst, and a num- financial officer, Pierre Breber.
WHAT NEXT: ber are cautiously restoring the output they have The super-major also reported earnings of
A number of producers curtailed since March. $700mn associated with a gain on the sale of
are cautiously resuming Over the past few days, a number of large and assets in Azerbaijan and tax items, but these were
curtailed output on hopes small North American upstream players alike eclipsed by the charges.
that the worst is over. have reported their second-quarter results. ExxonMobil’s quarterly loss, meanwhile, was
Notable producers to release their results comparatively smaller, coming in at $1.1bn,
over the past week or so include US-based down from a profit of $3.1bn in the second
super-majors ExxonMobil and Chevron, as quarter of 2019 and a loss of $610mn in the first
well as ConocoPhillips – the US’ largest inde- quarter of 2020. However, it was only the com-
pendent producers. They were joined by prom- pany’s second back-to-back quarterly loss in at
inent shale players including Pioneer Natural least 36 years.
Resources, Continental Resources and Devon Executives on ExxonMobil’s earnings call said
Energy. absolute demand had fallen to levels they had not
In Canada, major producers reporting their seen in nearly 20 years.
results over the past few days included Imperial ExxonMobil slashed its capital spending
Oil – ExxonMobil’s subsidiary north of the bor- for 2020 by around 30% to roughly $23bn, Amid the losses,
der – and Husky Energy. and expects to spend less than $19bn in 2021.
Amid the losses, some producers outper- If this remains unchanged, it would be the some producers
formed analyst expectations, thanks to cost-cut- super-major’s lowest level of spending since at outperformed
ting measures, or buoyed by the recovery in oil least 2005.
prices more recently. Others, however, posted While losses and asset impairments were seen analyst
some of their worst losses in years. almost across the board, European super-ma-
jors outperformed Chevron and ExxonMobil expectations,
Major struggle in some areas. For example, the trading arms of
Chevron was among those companies posting Total and Royal Dutch Shell have been credited thanks to cost-
a particularly large loss when compared with with bolstering their respective second-quarter cutting measures,
its performance in other quarters – indeed, earnings and allowing them to achieve small
the $8.3bn loss it reported was its worst at least profits. or buoyed by the
30 years. This marked a drop from a profit of Like their European rivals, though, Chevron
$4.3bn in the second quarter of 2019 and a profit and ExxonMobil saw their upstream segments recovery in oil
of $3.6bn in the first quarter of 2020. On an hit hard. Chevron reported a $6.1bn upstream
adjusted basis, Chevron reported a $3.0bn loss, loss, compared with a profit of $3.5bn in the prices.
down year on year from a $3.4bn profit. same quarter a year ago. ExxonMobil, mean-
The latest result was exacerbated by $3.9bn while, reported that its global upstream busi-
worth of charges for impairments, write-offs and ness swung to a $1.7bn loss in the second
severance accruals, with Chevron reporting total quarter of 2020, compared with a $3.3bn profit
non-cash net charges of $5.2bn in the second a year ago.

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