The first two quarters of the current year have been brutal to U.S. oil and gas companies. According to Refintiv data, the energy sector has recorded the lowest Q2 2020 earnings growth rate (-168.5 percent) of any U.S. sector with earnings clocking in at -$10.5B vs. $15.3B in the year-ago comparable quarter. That's far worse than the S&P 500 average earnings growth rate of -19.1 percent when you exclude the energy sector. As expected, oilfield service companies operating in the Shale Patch have been faring worse than most thanks to huge capex cuts by producers.
But U.S. shale producers can take some comfort in the fact that their counterparts elsewhere have not been doing much better.
Saudi and Chinese oil and gas giants have been booking massive losses, too, proving that Covid-19 is a pandemic of equal opportunity.
In the first half of 2020, Saudi oil revenue plummeted by 42.6 percent year-on-year to SAR 224.73 billion ($60.68B), compared to SAR 391.3 billion ($105.65B) for last year's corresponding period. April and May recorded the biggest revenue slumps at 65.4 percent and 66.1 percent, respectively, to SAR 24 billion ($6.48B) and SAR 23.87 billion ($6.44B), respectively.
Net profit at Saudi Aramco (ARMCO) slumped 73 percent to 24.6B riyals ($6.57B) in Q2 vs. estimates of 31.3B riyals. But unlike BP Plc. (NYSE:BP) and Royal Dutch Shell (NYSE:RDS.A), which cut their dividends in recent months, the majority state-owned company maintained its Q2 dividend of $18.75B. Aramco plans to cut 2020 capex to a range of $20-$25B in 2020 in order to pay the$75B dividend it pledged to investors during its IPO.
China--the world's largest oil importer-- has been importing less from Saudi Arabia as it boosts imports from the U.S., ostensibly in a bid to fulfill its obligations for the January trade deal. Related: Is This The Next Major Market For Russian LNG? Still, China is coming nowhere near holding up its end of the bargain: Last month, we reported that China's imports of U.S. energy products, including crude oil, liquefied natural gas (LNG), and metallurgical coal, clocked in at just $1.29B through June, or a mere 5 percent of the $25.3B energy target.
The Phase One trade deal committed Beijing to purchase an extra $52.4 billion of U.S. energy supplies over the next two years from a baseline of just $9.1 billion in 2017 and requires China to import an extra $200B worth of American goods over the next two years.
Maybe Beijing is betting on a Biden presidency granting its wish to have U.S.-China relations return to the halcyon Obama days.
Chinese oil companies themselves have been having it just as bad. Right along with China's "big four" banks, the oil giants saw profit drops in the first half of the year--and that's unusual.
Asia's largest oil and gas producer and China's second-largest refiner, PetroChina (NYSE:PTR), has reported a first-half net loss of 29.98 billion yuan ($4.36 billion) compared with a profit of 28.42 billion yuan ($4.13B) while H1 revenue fell 22 percent to 929 billion yuan ($135.1B). That's despite crude oil output climbing 5.2 percent to 475.4 million barrels while natural gas production rose 9.4 percent to 2.15 trillion cubic feet thanks to the state giant sustaining domestic drilling in a bid to safeguard national supply security.
China has been ramping up its gas production following an earlier pledge to use the lower-carbon fuel more.
PetroChina has pledged to cut emissions to near zero by 2050, and plans to spend 3-5 billion yuan (440M-730M) annually on green energy sectors including solar, hydrogen, and natural gas power generation in the first few years of the 2021-2025 period before increasing the spend to 10 billion yuan ($1.5B) a year.
Meanwhile, China's largest petroleum refiner, Sinopec Shanghai Petrochemical Company Limited (NYSE:SHI), saw net losses of 22.88 billion yuan ($3.33 billion) in contrast with a net profit of 31.34 billion yuan ($4.56B) over last year's corresponding timeframe amid sluggish demand for refined products.
Related: Big Oil's Petrochemical Bet Is A Risky One
Nevertheless, Sinopec reported net earnings of 4.8 billion yuan ($700M) for the second quarter thanks to China easing coronavirus restriction measures.
Sinopec says it expects demand for its refined oil products to recover even faster due to positive trends in the Chinese economy.
And despite the profit loss reporting at PetroChina and Sinopec, shares in both companies rose on Monday by more than 2 percent.
Indeed, Aramco CEO Amin Nasser said last week: "Look at China, their gasoline and diesel demand is almost at pre-COVID 19 levels. We are seeing that Asia is picking up and other markets (too). As countries ease the lockdown, we expect the demand to increase."
Now, industry sources are saying that Saudi Arabia will likely cut its crude oil official selling prices for Asian buyers even more. Another cut would be the second in two months, running parallel to lowering Middle East benchmarks and refining margins.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More
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