US oil giants slash capital budgets after crude crash

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The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas. (REUTERS File Photo)
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Exxon Mobil reduced capital spending by 30 percent to around $23 billion for 2020. (Reuters file photo)
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Updated 02 May 2020

US oil giants slash capital budgets after crude crash

  • Exxon Mobil and Chevron announced the belt-tightening moves as they reported first quarter results

NEW YORK: Exxon Mobil and Chevron announced deep spending cuts Friday as the petroleum industry girds for a potentially prolonged downturn due to low commodity prices in the wake of the coronavirus crisis. 

Both US oil giants announced the belt-tightening moves as they reported first quarter results, a period that saw oil prices retreat, but which preceded the first-ever drop in US crude futures to negative territory in April. 

The two US giants said they were preserving cash to maintain a dividend for investors. On Thursday, European rival Royal Dutch Shell cut its dividend for the first time since the 1940s. 

“COVID-19 has significantly impacted near-term demand, resulting in oversupplied markets and unprecedented pressure on commodity prices and margins,” said Exxon Mobil CEO Darren Woods. 

“While we manage through these challenging times, we are not losing sight of the long-term fundamentals that drive our business. 

FASTFACT

Exxon Mobil reported a $610 million loss for the first quarter, compared with $2.4 billion in profits in the year-ago period.

Economic activity will return, and populations and standards will increase, which will, in turn, drive demand for our products and recovery of the industry.” 

Exxon Mobil reported a $610 million loss for the first quarter, compared with $2.4 billion in profits in the year-ago period. Revenues fell 11.7 percent to $56.2 billion. 

The loss included $2.9 billion in non-cash costs on inventory and assets because of low commodity prices. 

US oil futures have remained volatile since closing in negative territory for the first time on April 20. While major oil producers have agreed to trim output, analysts fear the market remains brittle. 

Exxon Mobil reduced capital spending by 30 percent to around $23 billion for 2020 and will trim operating expenses by 15 percent. 

The company will slow some projects in the US Permian Basin and Mozambique, as well as expansions of downstream and chemical plants. The company “continues to  monitor market developments and evaluation additional reduction steps,” Exxon Mobil said. 

Chevron reported first-quarter profits of $3.6 billion, up 35.9 percent from the year-ago period. Revenues fell 10.5 percent to $31.5 billion. 

Although oil and natural gas prices were lower than in the year-ago period, the company’s downstream division scored much higher profits due in part to lower crude prices. 

Still, the company’s press release noted that “financial results in future periods are expected to be depressed as long as current market conditions persist.” 

Chevron announced it was further trimming 2020 capital spending by $2 billion to $14 billion in response to the operating environment. The company in late March had slashed the budget by 20 percent. 

“Chevron is responding to these unprecedented challenges by making changes to what we control, and with a commitment to protect the long-term health and value of the company,” said CEO Mike Wirth. 

 


China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

Updated 19 min 26 sec ago

China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

SINGAPORE: A group of niche Chinese gas firms is set to make waves in the global market with plans to invest tens of billions of dollars and double imports in the next decade as Beijing opens up its vast energy pipeline network to more competition.

The companies, mostly city gas distributors backed by local authorities, are ramping up purchases of liquefied natural gas (LNG) as newly formed national pipeline operator PipeChina begins leasing third parties access to its distribution lines, terminals and storage facilities from this month.

The acceleration in demand in what is already the world’s fastest-growing market for the super-chilled fuel is a boon for producers such Royal Dutch Shell, Total and traders like Glencore faced with oversupply and depressed prices.

Just last month, UK’s Centrica signed a 15-year binding deal to supply Shanghai city gas firm Shenergy Group 0.5 million tons per year of LNG starting in 2024.

“They’re very, very interested in imports — we’re talking to a lot of them already,” said Kristine Leo, China country manager for Australia’s Woodside Energy, which signed a preliminary supply deal with private gas distributor ENN Group last year.

China could buy a record 65-67 million tons of LNG this year and is expected to leapfrog Japan to become the world’s top buyer in 2022. Imports could surge 80 percent from 2019 to 2030, according to Lu Xiao, senior analyst at consultancy IHS Markit.

State-owned Guangdong Energy Group, Zhejiang Energy Group, Zhenhua Oil and private firms like ENN were quick to take advantage of the market reforms and low spot prices for LNG, said Chen Zhu, managing director of Beijing-based consultancy SIA Energy.

Their imports will reach some 11 million tons this year, up 40 percent versus 2019, more than 17 percent of China’s total purchases, said Chen.

For years such companies have worked to expand a domestic consumer base among so-called “last mile” gas users like tens of millions of households, shopping malls and factories, but they had to rely on state majors for supplies.

With greater access to distribution networks, they are now incentivized to build their own import terminals that could account for 40 percent of the country’s LNG receiving capacity by 2030, versus 15 percent now, Chen said.

Frank Li, assistant to president of China Gas Holdings, a private piped gas distributor, said his company has been in talks with PipeChina for infr structure access as it prepares to import LNG next year.

In Southern China’s industrial hub Guangdong, companies like Guangzhou Gas, Shenzhen Gas and Guangdong Energy hold small stakes in LNG facilities operated by China National Offshore Oil Company. They imported their first cargoes from these terminals last year.

Guangzhou Gas is set to import 13 LNG shipments this year, up from five last year, after “tough negotiations” with CNOOC won it access to terminals, said Vice President Liu Jingbo.

“The reform is bringing us diversified supplies, helping us cut cost,” Liu said.

Some companies also plan to beef up trading expertise by opening offices overseas, such as in Singapore, executives said.

“Naturally, companies will be thinking of growing into a meaningful player globally,” said a trading executive with Guangdong Energy, adding that his firm looks to Tokyo Gas , Japan’s top gas distributor and trader, as a model.

The rise of niche players will erode some market share held by state giants CNOOC, PetroChina and Sinopec, prompting them to scale back gas infrastructure investment and focus on global trading, while extending into retail gas distribution at home, officials said.