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Big Oil 2020 Earnings Synopsis: Is Recovery Around the Corner?

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Nilanjan Banerjee
·5 min read
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Investors have gained a clear idea about how big oil giants fared in 2020 from the recently concluded earnings announcements. Hit hard by the coronavirus pandemic, the bigwigs incurred huge losses last year but the billion-dollar question is, how long will it take for energy companies to recover fully?

Weak Oil Price Hurts Energy Giants

The price of West Texas Intermediate (WTI) crude oil has declined more than 20% in 2020 owing to the coronavirus pandemic. To curb the spread of the virus, governments across the nations had imposed lockdowns and strict social-distancing measures that drastically reduced demand for fuel that is used for transportation. In fact, dented global energy demand led WTI crude price to trade in the negative territory in April 2020.

With the fate of big oil players linked to crude prices, the unfavorable oil pricing scenario hurt energy players like Exxon Mobil Corporation XOM, Chevron Corporation CVX, BP plc BP and Royal Dutch Shell plc RDS.A. Notably, lower fuel demand also affected the companies’ downstream operations just like it hurt the upstream businesses.

Earnings at a Glance

ExxonMobil: In 2020, the energy giant posted loss per common share of $5.25, deteriorating from 2019 earnings of $3.36 per share owing to the pandemic.

The company’s upstream segment posted a loss of $20 billion in 2020 against the year-ago earnings of $14.4 billion owing to lower production and prices. The downstream unit reported a loss of $1.1 billion against the year-ago profit of $2.3 billion owing to lower fuel demand.

Chevron: The integrated energy player reported loss per share of $2.96 in 2020 versus a profit of $1.54 in 2019. The underperformance was due to weak upstream and downstream operations.

The company reported loss of $2.4 billion from its upstream business against a profit of $2.6 billion in 2019. From the downstream operations, Chevron posted earnings of $47 million, down from the year-ago period’s profit of $2.5 billion.

BP: The British energy giant posted adjusted loss of $1.69 per American Depositary Share (ADS) on a replacement-cost basis, excluding non-operating items, in 2020. This reflects deterioration from 2019 earnings of $2.95 per ADS owing to lower contributions from upstream and downstream operations.

After adjusting for non-operating items and fair value accounting effects, underlying replacement cost loss before interest and tax for upstream segment amounted to $5.1 billion. The figure deteriorated from a profit of $11.2 billion in 2019. Moreover, the company’s downstream segment’s earnings plunged 52% year over year in 2020.

Royal Dutch Shell: In 2020, the company’s adjusted earnings plummeted 71% year over year. Significant decline in contributions from the upstream business and lower realized refining margins hurt the bottom line.

Constructive Outlook

Although the pandemic is still ravaging the energy market, the business environment is gradually improving with WTI oil price rising 15.8% year to date. Upstream businesses are getting better as energy players are returning gradually to shale plays. Also, with social-distancing measures will likely relax since vaccines are rolling out at a massive scale across many countries. Thus, with the expectations that lives of people will gradually return to normal, global fuel demand will start improving, making the outlook for the energy giants’ downstream business brighter.

It is to be noted that in order to combat the climate change, investors are building pressure on energy giants to increase investment in renewable energy business. Now, there will be a gradual shift to renewable energy from fossil fuel. Thus, to gain in the long run, it will be a challenge for energy giants to provide cleaner energy in a sustainable manner.

British energy giant BP has targeted to become a net zero emissions company by 2050. As a result, in the coming years, the integrated energy player is planning to boost investments in non-oil and gas operations.

Royal Dutch Shell plc is another key energy firm planning to become a net zero emission energy firm by 2050. Importantly, the company intends to slash the carbon intensity of the products it will sell by roughly 30% by 2035. By 2050, the company plans to lower the carbon footprint by 65%. Royal Dutch Shell currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Moreover, activist shareholders are consistently exerting pressure on ExxonMobil to emphasize more on renewable fuels.

Last Words

With fuel demand improving gradually, upstream and downstream businesses are likely to improve in the coming quarters. However, to survive in the long run, big oil companies will have to emphasize more on cleaner energy since there has been rising demand from investors to fight the climate change.

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