(Bloomberg)-It was Andrew Swiger, ExxonMobil’s chief financial officer, who summed up the industry’s attitude towards big oil companies, because big oil companies reported another set of dismal quarterly earnings:” The price must go up.”
Driven by weak demand, after oil and natural gas prices have been low for several months, the world’s largest international oil company has basically exhausted its financial defense capabilities. If it is further hit, there is almost no room for maneuver. Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell Plc, Total SE and BP Plc have already reduced as much as possible in 2021
With the exception of Chevron and Total, which may have the strongest balance sheets, leverage is approaching disturbing levels. In summary, the major oil companies are now completely bound by the global fuel demand frenzy. There is no Covid-19 vaccine and no signs of weakening. OPEC+ leaders Saudi Arabia and Russia have no signs of weakening.
“What I want to say is that much of the company’s performance today and in the future depends on the macro environment that we will enjoy or suffer depending on the situation,” said Ben van Beurden, the company’s CEO. shell.
Brent crude oil closed this week below US$38 per barrel, bringing this year’s decline to 43%. ExxonMobil’s Swiger believes that at such a level, the industry is underinvesting in supply, so that a shortage is inevitable in the future, which means price increases. But price recovery also depends on two other things: increased demand and OPEC+’s advantage in curbing production, and the alliance between Russia and Saudi Arabia is usually uncomfortable.
As the number of Covid-19 cases in the United States hit a new high this week and new lockdowns are about to emerge across Europe, the virus and its impact on oil demand show no signs of abating. All executives from Dallas to Paris brainstormed, and oil predators accounted for less than 15% of global oil demand before the pandemic. If supply discipline is to succeed, heavyweight national oil producers will have to work together, and Crown Prince Mohammed bin Salman and President Mohammed Putin must continue to get along.
One bright spot is the production of shale oil in the United States. Driven by a decade-long debt, shale oil production is all free, which surprised supermarkets and relaxed OPEC’s control of the oil market. Executives of some of the largest independent oil producers in the United States believe that the United States may never return to its peak output at the beginning of this year, and that it may fall further by 2021.
The chief executives of large oil companies are powerless to promote geopolitical cooperation, but in the past six months they have been doing their best to prevent the loss of cash. Or in corporate terms, they focus on self-help: reduce unprofitable production, reduce expenditure and future investment, and lay off tens of thousands of employees.
Exxon represents the trouble facing the super giants. A year ago, the Texas-based company’s goal was to spend as much as $35 billion in capital expenditures by 2021. Now, it plans to spend half. Exxon Mobil Corporation announced this week that it will cut 15% of its employees and contractors by 2022, or 14,000 employees. Even then, ExxonMobil’s expenditures exceed revenue, and capital and dividend expenditures will consume all cash in its operations.
Many people in the market believe this situation is unsustainable, and if prices do not rise, Exxon Mobil will have to give in and cut dividends for the first time in more than 40 years. Alastair Syme, an analyst at Citigroup Inc. in London, said: “The message is clear: stocks need to protect higher oil prices.”
Shell and British Petroleum cut their dividends earlier this year, but they are still suppressed by high debt levels. Shell outlined its plans to increase its dividend this week. Nevertheless, this still requires higher oil prices, and it will take decades of small interest rate hikes to reach previous levels.
Cost reductions seem to have achieved results in the third quarter, with four of the five large Western professional schools achieving profitability on an adjusted basis. But they can only cut so far.
Take Chevron as an example. Even with the recent acquisition of Noble Energy Inc., the company still plans to invest only US$14 billion next year. This is far less than the minimum $10 billion in the company’s history to maintain production. Chief Financial Officer Pierre Breber said that if there are financial considerations, the company will reduce oil production. He said: “We are not trying to maintain short-term production.”
The question is not whether Big Oil can survive, but whether it can still make investors care. BP and Shell are no longer the key to dividends in European stock markets. Exxon is a profit-driven company that has been ranked among the top of the S&P 500 Index for many years and is now outside the top 50. Energy’s current value is about 2% of the S&P 500 Index, which makes it a rounding error in many generalist fund managers’ portfolios.
Jennifer Rowland, an analyst with Edward Jones in St. Louis, said: “It is a million-dollar problem to make energy and energy relevant and reinvestable.” “They are still trying to figure this out. “
For Roland, it is vital to develop a compelling strategy in a low-carbon future. Roland said that although this has brought benefits to Europeans, Europeans have promised to achieve net zero emissions by the middle of this century. This is different from Exxon Mobil and Chevron, but BP and Shell still need to resume their traditional businesses. To fund this initiative. With less cash, green hubs become more difficult.
Exxon Mobil’s Swiger firmly believes that prices will recover. He said things were so bad that the prices of oil, refining and chemical products were “at or significantly lower than the bottom of cyclical conditions.” Whether big oil investors are willing to wait for this prediction to come true remains to be seen.
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