Page 4 - Euroil Week 44 2020

EurOil COMMENTARY EurOil

European majors endure

another tough quarter

Europe’s majors have reported stronger numbers in Q3 than in Q2, but they
have little room to manoeuvre if there is another slump in demand

EUROPE EUROPE’S largest oil and gas producers were
spared in the third quarter from the pain they
WHAT: endured in the previous three months, when the
BP, Shell and Total coronavirus (COVID-19) crisis was at its height.
returned to profit in Q3, But their numbers were still dramatically lower
while Eni and Equinor than in the same period last year, and the market
were less fortunate. outlook remains bearish.
Demand and prices for oil and fuels has
WHY: recovered in recent months following the easing
The majors grappled of COVID-19 lockdowns over the summer and
with lower prices, output continued supply cuts by OPEC+. Gas prices
cuts and weak refining have taken longer to bottom out and have taken
margins. longer to rebound, however, partly because of oil
indexation in some contracts. But an end to the
WHAT NEXT: market turmoil is still not in sight.
The companies have The world is now in the grip of a second wave
already made most of the of COVID-19, with Europe, the US and many losses in Q3 2019.
spending cuts they can other countries again seeing record daily infec- The company sold its liquids for $31.74 per
make, and can only hope tion rates. Some major oil consumers such as barrel on average during the three months end-
for a recovery. Italy, Germany and France are again going into ing September 30, up from $21.63 in Q2 2020
lockdown mode. It is telling that OPEC+, which but down from $50.46 in Q3 2019. Its gas fetched
is among the most bullish forecasters, reportedly $2.56 per 1,000 cubic feet ($90.4 per 1,000 cubic
now sees a risk of an oil supply surplus re-emerg- metres), barely changed from $2.53 in the pre-
ing in 2021. vious three months and down from $3.11 a year
After months of low prices, though, Europe’s earlier.
majors have largely exhausted their financial Production, excluding contributions from
defences, having already made drastic cuts to BP’s 19.5% stake in Russian oil firm Rosneft, was
operational and capital spending. This gives down 12.7% year on year at 2.243mn barrels of
them little room to manoeuvre if there is another oil equivalent per day (boepd) in Q3 2020. These
full-blown slump in fuel demand, and puts them declines were largely owing to divestments in the
at the mercy of OPEC+ decision-makers. US and Egypt.
At the same time, Europe’s oil leaders are also Driving the quarter-on-quarter improve-
pursuing aggressive strategies to move away ment was BP’s upstream segment, which made
from fossil fuels and expand in cleaner energies. $878mn in underlying profit in Q3 2020,
But implementing these plans will not be cheap. compared with a $8.49bn loss in Q2 2020. Its
upstream income in Q3 2019 amounted $2.14bn.
BP Despite recovering fuel demand, BP’s down-
BP posted a surprise, posting an underlying stream underlying earnings tumbled to $636mn
replacement cost (RC) profit of $86mn in the in Q3 2020, from $1.41bn in Q2 2020 and
third quarter, versus a $6.68bn loss in the second $1.88bn in Q3 2019. It also sustained a $177mn
quarter. The UK major attributed the improve- loss from its stake in Rosneft.
ment to a rebound in prices and demand. But BP, which has seen its share price slump
income was dramatically lower than a year ear- nearly 60% since the start of the year, gave share-
lier, when it hit $2.25bn. holders little indication that their returns would
BP booked a net loss attributable to share- improve, after it cut its dividend by 50% for Q2
holders of $450mn in Q3 2020. In the previous 2020. The company has fixed its dividend and
quarter it suffered a staggering $16.8bn in losses has said it will not resume its share buybacks for
on impairment charges, after slashing its long- at least another year.
term forecasts for prices. It reported $749mn in There was some cause for comfort, however.

P4 www. NEWSBASE .com Week 44 05•November•2020