Oil giants reel from record pandemic losses

Source: By Mike Lee, E&E News reporter • Posted: Wednesday, February 3, 2021

The top U.S. oil companies say they’re committed to their core business of fossil fuels despite pressure from investors, a new president who wants to address climate change and a disastrous year brought on by the coronavirus pandemic.

Exxon Mobil Corp. yesterday announced a record $22.4 billion loss in 2020, the company’s first full-year loss in decades. ConocoPhillips said it lost $2.7 billion for the year. The news came three days after Chevron Corp. reported a $5.5 billion loss during 2020 (Energywire, Feb. 1).

The COVID-19 pandemic, which has killed more than 2 million people worldwide, according to a database maintained by Johns Hopkins University, pushed oil prices to record lows in 2020. The industry responded by slashing its costs, laying off tens of thousands of workers and selling off high-cost oil fields.

After announcing it would eliminate 14,000 jobs last year, among other spending cuts, Exxon is positioned to turn a profit this year, according to top executives. The company will pay its shareholder dividend even if oil prices fall to $35 a barrel, about $30 less than a year ago, CEO Darren Woods said yesterday on the company’s conference call with analysts. And it can adjust its oil output in the Permian Basin to rise and fall with prices, he said.

“The key point here is that we have flexibility and options, which is expected to improve with time,” Woods said.

The bulk of Exxon’s loss for the year came from writing down the value of its oil and gas assets. Excluding those costs, the company turned a small profit in the fourth quarter of 2020 after losing money for the previous nine months.

Exxon and its peers have largely stayed away from investing in renewable forms of energy, something that European oil companies have embraced as a hedge against climate change.

“At least for now, we believe the highest value we can create for all our stakeholders is by being the best E&P company in the business,” ConocoPhillips CEO Ryan Lance told analysts yesterday, using an abbreviation for exploration and production.

Investor groups have said the industry is ignoring its risk from climate change. An activist fund called Engine No. 1 is running a proxy campaign against Exxon to replace four of the company’s board members and refocus its investment strategy.

Exxon named one new director yesterday and announced a $3 billion investment in emissions reduction technology earlier this week. Engine No. 1 said in a statement that the changes don’t go far enough.

“Today’s patchwork of announcements do not materially alter ExxonMobil’s long-term trajectory nor do they position it to succeed in a changing world,” the fund said in a statement.

Another hurdle for the oil industry is the Biden administration’s commitment to combating climate change. The Interior Department has temporarily stopped leasing federal land and water for oil and gas development, but many companies have said they can keep drilling for years on previously leased land.

ConocoPhillips is potentially exposed to a long-term lease slowdown because it’s a major producer on federal land in Alaska. In October, the Trump administration approved permits for ConocoPhillips’ $4 billion Willow development in the National Petroleum Reserve-Alaska (Energywire, Oct. 28, 2020).

Lance said ConocoPhillips hasn’t made a final investment decision on Willow, so it has flexibility “if things move to the right because of this current administration, or somehow we get curveballs thrown at us.”

More broadly, the moratorium could become a problem if it becomes permanent, Lance said. But he said the company was able to keep drilling throughout the Obama administration and plans to engage with the Biden administration.

In the meantime, he said, “ConocoPhillips has the flexibility, the diversity and the depth of low cost-of-supply and low-GHG resource to manage through this issue without materially impacting our plan.”