Six Major International Oil Companies Lost 380 Billion Yuan In Half A Year

Recently, major international oil companies (IOC) have announced their second quarter results one after another. Before that, the market generally expected that the oil companies would perform poorly in the second quarter, but the final result still exceeded the worst imagination.

At present, Royal Dutch Shell, BP, ExxonMobil, total, Chevron and ConocoPhillips have announced their second quarter results. According to the reporter's statistics, the total loss of the six multinational oil companies in the second quarter reached 53.693 billion US dollars (about 374.8 billion yuan), and the total loss in the first half of the year was 54.572 billion US dollars (about 380.972 billion yuan).

This is the worst time in the history of modern oil company. Under the influence of the new crown pneumonia epidemic and the precipitous fall of oil prices, the IOC are experiencing the harshest first half of the 20th century.

According to the newly released 2020 Fortune Global 500 list, shell, BP and ExxonMobil have dropped by 2 places, 1 place and 2 places respectively compared with the previous year. Among them, shell's position has been surpassed by two Chinese central energy enterprises, CNPC and State Grid.

Big oil companies generally suffer huge losses

The reason why oil companies generally suffer huge losses is very clear - oil prices. In March this year, the talks on OPEC's production reduction collapsed. Saudi Arabia took the lead in launching an oil "price war", adding to the negative impact of demand brought by the spread of new crown pneumonia in the world. Oil prices fell rapidly, and Brent oil prices once fell below $20.

After April, the global blockade intensified due to the large-scale spread of the epidemic. However, with a new round of production reduction agreement reached by OPEC +, the oil price began to recover gradually and recovered to about $40 in June. However, the average oil price from April to June of this year is still far below the cost line of major companies, so it is reasonable for oil companies to suffer large losses.

In the second quarter of this year, shell lost more than $18 billion, BP lost $16.848 billion, ExxonMobil $1.08 billion, total $8.4 billion, Chevron $8.3 billion and ConocoPhillips adjusted net loss of $994 million.

It is worth mentioning that, except ExxonMobil and ConocoPhillips, the other four companies suffered significant losses, mainly due to large-scale asset write downs, of which chevron made two tens of dollars of asset write downs during the year.

BP is the first company to initiate large-scale asset write downs among oil companies.

On the afternoon of June 15, BP announced that it would significantly write down the value of assets in the second quarter of this year, ranging from $13 billion to $17.5 billion after tax. Just half a month later, shell announced its own write downs of $15 billion to $22 billion.

In addition to asset write downs, major oil companies have also lowered their expectations for future oil prices. BP forecasts that the average price of Brent crude oil from 2021 to 2050 is expected to be $55 / barrel, down 30% from the revised $70 / barrel.

"Big oil companies are reassessing their long-term investment assumptions." Angus Rodger, head of upstream research at wood Mackenzie, told reporters, "this process will continue and we expect further large-scale write downs across the industry."

At the same time, he said, according to wood Mackenzie's calculation, the global upstream industry's valuation has shrunk by $1.6 trillion.

However, in the long run, IOC is undergoing a low-carbon or even zero carbon transformation. Such a large-scale asset write down is in line with the objective law of market development. "In the long run, this is about the transformation of the oil and gas business of oil companies." "At the same time, it's a new step for the market to reassess the value of global oil and gas assets," Angus Rodger said

Trade business becomes a bright spot

Surprisingly, the oil and gas trading business of large IOC experienced an exceptionally strong growth just as the oil companies suffered huge losses in the second quarter.

Taking shell as an example, excluding the large-scale write down in the second quarter, the revised net profit can reach 680 million US dollars. In its various business sectors, the trade revenue was as high as 1.5 billion US dollars, far more than 5200 US dollars in the same period last year.

BP's situation is very similar. In the second quarter and the first half of this year, the company's cost replacement profit in its oil products business segment was $1295 million and $1.984 billion, up from $961 million and $2.253 billion in the same period last year. The company explained that this was driven by "exceptionally strong contributions from supply and trading.".

This shows a surprising fact: even in the three months of such low oil prices, physical trade through various means is still very profitable. "Three months is too short and special after all." An oil industry insider told reporters, "there is no way to conclude whether this situation will be maintained throughout the year."

He explained to reporters that companies such as shell and BP can buy and store oil, lock in profits and earn price differentials by selling a large amount of forward crude oil in the derivatives market when the oil price drops sharply.

"After this year's sharp drop in oil prices, especially after reaching the low level of around $20 / barrel, the oil futures market has maintained the contango structure for a long time, that is, the forward futures prices are higher than those in the near future." The source told reporters.

However, not all oil companies can carry out arbitrage through trade. Large international oil companies have a high credit level and can make relatively low-cost loans. At the same time, they have strong supply chain management ability and a large number of cheap reserve capacity. Compared with independent trading companies or simple oil and gas production companies, they have unique advantages.