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Reality Setting In For The Oil Majors

Reality Setting In For The Oil Majors

Third quarter earnings capture some of the worst losses recorded since the downturn in oil prices began last year. Oil prices have displayed great volatility over the last twelve months, rallying to $60 per barrel in the second quarter before dropping back down to current levels in the mid-$40s. That has contributed to some large impairment charges and quarterly losses for the world’s biggest oil companies. Here is a quick snapshot of some of the quarterly figures:

• Hess (NYSE: HES) reported a net loss of $291 million, or a loss of $1.03 per share. Production jumped, however, from 318,000 boe/d in 3Q2014 to 380,000 boe/d in 3Q2015.

• Marathon (NYSE: MRO) became the first large U.S. shale producer to cut its dividend, slashing it from 21 cents to 5 cents per share, or a cut of 76 percent. “When you see major companies cutting dividends, that’s telling you things are bad,” Carl Larry of Frost & Sullivan told Bloomberg. “They’ve been placating investors by saying the dividends are fine, you’re still going to make money, don’t worry about it. Now they’re facing reality here.”

• ConocoPhillips (NYSE: COP) reported a $1.07 billion loss, or $0.87 per share, the largest in six years. ConocoPhillips doesn’t have much exposure downstream, which has helped some other integrated oil companies offset upstream losses. Conoco says that it will maintain its dividend. Production also rose increased by 5.5 percent to 1.55 million boe/d

Related: Why Do Oil Companies Manage Their Own Logistics?

• Royal Dutch Shell (NYSE: RDS.A) revealed a huge $6.1 billion loss for the quarter, which included impairment charges of $7.9 billion. Shell ditched its drilling campaign in the Arctic and also wrote off assets in Canada’s oil sands. Stripping out the huge one-off losses, Shell earned $1.8 billion, still down 70 percent from the third quarter of 2014.

• Eni (NYSE: ENI) lost 952 million euros in the third quarter. Eni also announced a sale of 12.5 percent stake in Saipem, an oilfield services company.

• ExxonMobil (NYSE: XOM) posted a reasonable $4.24 billion profit, or $1.01 per share, beating expectations and outperforming its peers. However, profits are still half of the $8.07 billion from last year’s third quarter, and the year is shaping up to be the company’s worst performance since 2009. Exxon’s upstream sector saw profit plunge by 79 percent, but that was offset by the doubling of earnings downstream to $2 billion.

• Chevron (NYSE: CVX) earned $2 billion for the quarter, or $1.09 per share. That is down by 35 percent from year ago figures. The company also announced it would lay off 6,000 to 7,000 workers and it would sell off $5 to $10 billion in assets by the end of 2017.

• Even PetroChina (PTR), China’s largest oil and gas producer, reported miserable numbers. Earnings fell to 5.2 billion yuan, or 0.03 yuan per share. That is about one fifth of the level from a year ago. The performance was the worst for PetroChina on record.

The rough quarter is contributing to a rising number of cancelled projects. As mentioned above, Shell decided to abandon a major oil sands project in Alberta, Canada. The Carmon Creek project had been expected to produce 80,000 barrels per day. The project was doomed by low prices, however, as well as by inadequate pipeline capacity. The decision highlights the plight of Canada’s oil sector as it deals with a change in government. The industry has been unable to build enough pipelines to get its oil to tidewater and, as such, with pipelines near capacity, E&P companies are having trouble moving product to market. The benchmark for Canadian crude – Western Canada Select – trades at a discount to WTI, a discount that widened to more than $20 per barrel in August.

Related: Top Oil Companies Report Dismal Earnings

The high costs of producing from Alberta’s oil sands, combined with the steep discount, has Canada’s oil sector increasingly uncompetitive. At least 18 oil sands projects have been deferred or scrapped altogether over the past year, according to ARC Financial Corp. A drought of new production could hit Canada’s oil patch, but due to long lead times, the slowdown could take place towards the end of the decade, after the current queue of projects under construction is worked through. At this point, it appears that any project that has not already received a greenlight will not move forward.

Chevron reported some good news on a Gulf of Mexico prospect. Its Anchor discovery could hold enough oil for the field to not only be developed, but to become a hub for further development in the area. Other hubs, such as Chevron’s Jack/St. Malo fields, could become sites for centralized processing facilities. More tests will be needed, but Chevron is confident that the Anchor, located a mile beneath the sea surface, could be one of the largest discoveries to date in the Lower Tertiary.

The French energy company ENGIE (EPA: ENGI) announced a deal to import LNG from the United States. ENGIE, formerly known as GDF Suez, signed a five-year deal with Cheniere Energy (NYSE: LNG) to import LNG from Cheniere’s Sabine Pass and Corpus Christi export terminals. The deliveries will start in 2018. The deal could help contribute to more varied sources of energy supply for the EU, which is searching for ways to diversify away from Russian natural gas.

Related: 10 Tips For Oil Companies To Ride Out The Storm

ExxonMobil is dealing with a growing controversy over the allegations that the company conducted cutting edge research on climate change decades ago only to bury the research when it realized that the ramifications of releasing the climate data could lead to a potential regulatory crackdown on greenhouse gas emissions. The company denies the allegations, but the story is getting sucked into the presidential race. Hillary Clinton said on October 29 that she agreed that the Justice Department should investigate ExxonMobil.

Nigeria has plans to establish a $25 billion fund to upgrade transit and energy infrastructure. The country is the reeling from low oil prices, which have negatively impacted the Nigerian economy and the country’s currency.

Finally, in oil market news, storage levels continued to climb this week in the United States. The EIA reported an uptick of more than 3 million barrels in inventories over the past week, bringing total storage levels to 480 million. Oil prices jumped on October 28, the sharpest rally in weeks. But prices pared back gains on October 29, as traders pocketed profits. The market still looks oversupplied, with no obvious catalyst on the upside, at least in the near term.

By Evan Kelly of Oilprice.com

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