Probably not since the Second World War have the big oil companies released earnings under such turbulent and unpromising circumstances. Their big losses and write-downs are shocking but unsurprising. Are they just the reflection of bad times, or indicative of flawed strategic choices, or do they point to a grim long-term future for the oil super-majors?
In the second quarter, lockdowns under the pandemic drove world oil demand to fall 16.4 million barrels per day, as estimated by the International Energy Agency, a drop far beyond any historical experience.
US oil prices famously went briefly negative. Brent crude, the international benchmark, tumbled to average $29 per barrel in the second quarter, from $67 per barrel at the end of last year, and that would have been far worse without the steep production cuts of the Opec+ alliance. The international oil firms’ production dropped too: some of it was located in Opec+ countries, some in the US and Canada simply became uneconomic.
Not surprisingly, oil companies’ second-quarter results are horrible. The American firms have been hit worst: Chevron lost $3.1 billion (Dh11.4bn), after non-cash charges; ConocoPhillips almost $1bn; ExxonMobil $1.1bn. ExxonMobil’s followed on its quarter-one loss, the first it had recorded in thirty years. Its operating cashflow was virtually zero.
Shell had already cut its dividend in April for the first time since World War Two. Yet it, Total and Equinor managed to beat analysts’ estimates and eke out small profits, while Eni lost $839m; BP reports on Tuesday.
Specialist trading companies, by contrast, did well. They benefit from volatility, from upsets in supply chains, and from storing commodities. Glencore expects full-year pre-tax profits to be around $3.2bn, compared to $1.32bn last year.
This partly explains why the European supermajors performed relatively better than their trans-Atlantic cousins. Shell, Total and Equinor all saw very strong profits in trading. ExxonMobil was buoyed by $1bn of refining profits, but neither it nor Chevron has a large trading operation. In fact, ExxonMobil’s early-stage trading operation managed to make a loss.
But the Americans are also hampered by their relative retrenchment internationally in favour of a recent focus on shale.
These relatively high-cost operations, with high decline rates, were hammered by the price slump, with some 2.2 million barrels per day of loss-making US production closed-in during the worst period, though now partly returning.
Chevron’s shale assets are widely acknowledged to be excellent, but plans to double output to about 1 million barrels per day by 2024, as much as Oman, have been replaced by an outlook in slight decline.
For this reason, BP’s results will be interesting: it has just completed the sale of its long-time Alaskan assets but remains the most exposed of the European supermajors to shale after buying BHP’s position back in October 2018.
So, in some ways, the integrated international oil company model has performed well. As intended, refining offset losses in upstream production at a time of falling prices, even though throughput dropped, while trading has been profitable in a turbulent period.
Diversification across a range of geographies and asset types helped the Europeans (as did a tax cut in Equinor’s home base of Norway). Their initial moves into “new energy”, including solar, wind and electricity retail, albeit tentative, have held up well and contrast with the US firms’ concentration on oil and gas.
But the short-term results, under the unusual situation of coronavirus, need to be separated from the longer-term outlook. Here, all the companies have announced massive write-downs and restructuring expenses: $5.6bn from Chevron, including the entire $2.6bn valuation of its Venezuelan assets; $8.1bn for Total; $16.8bn for Shell; a possible $17.5bn for BP.
The write-downs are mostly related to lower long-term views on oil and gas prices, which have dropped from $60-80 per barrel before the pandemic, to $50 per barrel, in Total’s view, and $60 per barrel by 2023, in Shell’s.
This resetting of long-term price expectations seems long overdue. It should not have taken a once-in-a-century pandemic to suggest that levels of $60-80 per barrel are very difficult to sustain when new shale drilling is profitable at the lower end of that range, and electric vehicles are fast-improving in cost and performance. The damage Covid-19 has wrought on demand really ought not to make much difference for prices in 2030 and beyond, which will be set by levels of investment, technological advances, and climate policy. Indeed, Total’s write-offs are mostly in its high-cost, high-carbon Canadian oil sands, which it sees as potentially “stranded” by climate policy.
In May, BP’s new chief executive Bernard Looney said the Covid-19 crisis may even have brought us to “peak oil demand” – and that worldwide consumption would never recover to pre-pandemic levels. That appears overly pessimistic. But the oil industry has been given a foretaste of peak demand, widely predicted to occur some time in the 2030s as electric vehicles and other non-oil technologies take over.
The strategies of the supermajors have diverged significantly in recent years, and the pandemic has been their first stern test. In a near future of great uncertainty and volatility for oil and gas firms, flexibility and diversification are the cardinal virtues. Coronavirus is a stiff but hopefully short-lived challenge; climate change is an existential one.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
Killing of Qassem Suleimani
UAE currency: the story behind the money in your pockets
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
Tips to avoid getting scammed
1) Beware of cheques presented late on Thursday
2) Visit an RTA centre to change registration only after receiving payment
3) Be aware of people asking to test drive the car alone
4) Try not to close the sale at night
5) Don't be rushed into a sale
6) Call 901 if you see any suspicious behaviour
The%20specs
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The years Ramadan fell in May
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
UAE currency: the story behind the money in your pockets
Mohammed bin Zayed Majlis
More on Quran memorisation:
Tips to keep your car cool
- Place a sun reflector in your windshield when not driving
- Park in shaded or covered areas
- Add tint to windows
- Wrap your car to change the exterior colour
- Pick light interiors - choose colours such as beige and cream for seats and dashboard furniture
- Avoid leather interiors as these absorb more heat
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
Farage on Muslim Brotherhood
Nigel Farage told Reform's annual conference that the party will proscribe the Muslim Brotherhood if he becomes Prime Minister.
"We will stop dangerous organisations with links to terrorism operating in our country," he said. "Quite why we've been so gutless about this – both Labour and Conservative – I don't know.
“All across the Middle East, countries have banned and proscribed the Muslim Brotherhood as a dangerous organisation. We will do the very same.”
It is 10 years since a ground-breaking report into the Muslim Brotherhood by Sir John Jenkins.
Among the former diplomat's findings was an assessment that “the use of extreme violence in the pursuit of the perfect Islamic society” has “never been institutionally disowned” by the movement.
The prime minister at the time, David Cameron, who commissioned the report, said membership or association with the Muslim Brotherhood was a "possible indicator of extremism" but it would not be banned.
Summer special
Greatest of All Time
Starring: Vijay, Sneha, Prashanth, Prabhu Deva, Mohan
More coverage from the Future Forum
Mohammed bin Zayed Majlis
AI traffic lights to ease congestion at seven points to Sheikh Zayed bin Sultan Street
The seven points are:
Shakhbout bin Sultan Street
Dhafeer Street
Hadbat Al Ghubainah Street (outbound)
Salama bint Butti Street
Al Dhafra Street
Rabdan Street
Umm Yifina Street exit (inbound)
SPEC%20SHEET
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BULKWHIZ PROFILE
Date started: February 2017
Founders: Amira Rashad (CEO), Yusuf Saber (CTO), Mahmoud Sayedahmed (adviser), Reda Bouraoui (adviser)
Based: Dubai, UAE
Sector: E-commerce
Size: 50 employees
Funding: approximately $6m
Investors: Beco Capital, Enabling Future and Wain in the UAE; China's MSA Capital; 500 Startups; Faith Capital and Savour Ventures in Kuwait
UAE currency: the story behind the money in your pockets
