CCentral-Main-logo-EN-trans

Convenience Central
Join our community
extra content
Shutterstock

Big oil takes a big hit

Shutterstock

Shutterstock

Last week was brutal for global oil majors with leading operators such as Chevron, EXXON Mobil, as well as others, including Total, Shell and Husky, reporting huge second-quarter losses with slumping oil prices and demand declines due to COVID-19.  Reports suggest Chevron and EXXON’s poor numbers reflect the biggest losses in U.S.-based petroleum in the more than 160 years the U.S. has been selling oil products.

Chevronamid huge write-downs, announced it will cut 5% of its global output during this quarter and will hold off on plans to ramp up production at its Permian Basin shale holdings. The company announced July 31 that it had lost (US)$8.3 billion in the second quarter. This compares to the (US)$4.3 billion it took home in Q2 profits at this time last year.

Exxon too has announced its expansion plans are on hold after reporting it generated no operational cash flow in Q2. The company reported its (US)$1.1 billion losses in the quarter were the largest since its merger with Mobil in 1998.

While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter 2020,” Chevron offered in a statement.

Husky Energy is also reporting a large loss over the second quarter. Last week the Calgary-based major announced losses of $304 million. This contrasts with last year when the company reported profit of $370 million over the quarter. Behind the loss was the decline in crude pricing that fell from an average of $67.82 to $24.36 per barrel. Husky also suffered from an 8% decline in production as it tried to stem the damage from low oil prices.

France’s Total Energy joined the group with an $8 billion write-down of its assets of which many are in the oil sands region of Alberta. The company recently announced it would slice $5.5 billion in the value of its Fort Hills and Surmont Canadian oil sand projects.

Biggest Q2 losses were recorded by Royal Dutch Shell where losses were (US)$18.1 billion. Earnings were down 82%.

Massive losses aside, expectations are that the market is strengthening as the world seeks to normalize and move into new pandemic phases. Already companies, such as ConocoPhilips, have begun to reverse their Q2 curtailments and are ramping production upward across Canada and the U.S. markets.


Unknown

Stirring in the oil patch, Chevron buys Noble for $5 billion

Chevron will take over Noble Energy for $5 billion in the first big deal announced since the coronavirus pandemic shook the energy sector.

Chevron has been shopping for assets since last year and with crude prices down more than 30% this year, it jumped Monday with its all-stock offering for the independent Houston oil and gas driller.

Based on Chevron’s closing price on Friday, Noble Energy shareholders will receive 0.1191 shares of Chevron for each Noble Energy share. But with the list price comes a lot of debt.

Energy companies had been taking on enormous debt even before the pandemic with energy prices have bouncing all over the place. Noble is no exception.

The total enterprise value of the deal is $13 billion, with Chevron assuming Noble’s debt.

Other big players, seeking to cut costs and load up on assets, will likely follow Chevron’s lead, said Gianna Bern, a finance professor at the University of Notre Dame’s Mendoza College of Business.

“This is the first wave of acquisitions,” Bern said.

Last year, as it pursued potential buyout targets, Chevron lost out when Occidental Petroleum made a $38 billion deal for one of them, Anadarko, even though Chevron is five times the size of Occidental.

While Occidental’s valuable holdings in the Permian Basin of west Texas and New Mexico appeared to be a good match, Chevron said at the time that it favoured discipline over “winning at any cost.”

It’s found another match in Noble Energy.

The acquisition brings to Chevron low-cost, proven reserves in addition to cash-generating offshore assets in Israel, strengthening the company’s position in the Mediterranean. Noble’s portfolio will also add to Chevron’s U.S. acreage in the Permian Basin and in Colorado’s DJ Basin.

“Noble Energy’s multi-asset, high-quality portfolio will enhance geographic diversity, increase capital flexibility, and improve our ability to generate strong cash flow,” said Chevron Chairman and CEO Michael Wirth. “These assets play to Chevron’s operational strengths, and the transaction underscores our commitment to capital discipline.”

That discipline is mandatory for any company in the energy sector this year.

On Monday, energy services company Halliburton reported a quarterly loss of about $1.7 billion, and that was better than industry analysts had expected. The 57% plunge in revenue was not.

Energy demand has bounced back as economies reopen globally. U.S. crude prices that fell for first four months of the year are gaining ground, and have been positive since May. It appears prices may remain positive for July, but prices are seesawing and the longest positive streak this month has been two days.

Surging cases of COVID-19 in the U.S., the world’s largest economy, now threaten to hamstring an industry already hit hard by layoffs.

Chesapeake Energy, a shale drilling pioneer that was once one of the largest natural gas producers in the world, filed for bankruptcy protection last month.