Mark Young, Evaluate Energy & CanOils
As Q2 results continue to flood in, Evaluate Energy has reviewed the performance of the world’s oil and gas majors – BP, Chevron, ConocoPhillips, ExxonMobil, Royal Dutch Shell and Total – to gauge the impact of the price collapse of late 2014 on their respective starts to 2015, with the main focus on their upstream earnings, production and capital expenditures.
Earnings down, production slightly up
Predictably, in terms of unadjusted earnings (see note 1) in the upstream sector, the start to 2015 has not been the six month period the majors will have hoped for. The fall in prices saw all six companies report lower quarterly earnings in Q1 and Q2 than their respective average quarterly earnings from 2014, with half of the group recording upstream losses in Q2; BP's Q2 earnings were impacted by a loss of over $10 billion related to the Gulf of Mexico spill response, whilst Chevron – remarkably recording its first unadjusted upstream quarterly loss since Q4 2001 – and ConocoPhillips both suffered impairment charges to account for their own upstream losses in Q2.
Production was a different story, however, with all companies apart from Shell averaging a slightly higher rate over the first six months of 2015 compared with the full year 2014.
All companies did record a slightly lower average production rate in Q2 2015 compared to Q1 2015, but, with Shell's acquisition of BG in the pipeline, all the majors are looking at the prospect of higher production than they had in 2014 as we enter the latter half of the year.
Capital expenditure cuts
E&P capital expenditure budgets were the first thing that many companies adjusted when faced with the prospect of prolonged lower commodity prices – but the majors did not cut as drastically as everybody else.
In a quick study of 60 US listed companies (see note 2) that cut upstream capex spends in Q1 2015 compared with the average spend per quarter in 2014, the average cut was around 33%, with some companies slashing upstream capex by nearly 80% compared to last year's average quarterly spend. In contrast, Total bucked the trend and spent more in Q1 compared to 2014's quarterly average, whilst the other 5 majors average only a 20% cut between them. Moving into Q2, 53 of the 60 US companies continued to drop capex spends from Q1 levels at an average of 32%. As for the majors, ConocoPhillips – the only company of the 6 not to have a refining sector to bolster its overall earnings by taking advantage of lower raw material costs – was the only one that continued to significantly drop its spending, whilst BP, Chevron, ExxonMobil and Shell all maintained Q1 levels and Total dropped spending from its high Q1 outlay. For Total, this means its 2015 average quarterly spend is now back in line with average 2014 levels.
Of course, it's not easy to pull the plug on large-scale projects, which tend to be the domain of the majors, and capital will be committed to them regardless of price movement. While this dynamic will have played some role in the majors not cutting their spending as much as smaller companies, the apparent lack in reaction by the majors compared to the rest of the industry does stand out.
However, should commodity prices continue to drop or fail to rebound any time soon, it wouldn't be the greatest of surprises to eventually see the majors cut their spending more deeply.
All data here is taken from the Evaluate Energy database.
1) The term “unadjusted earnings” used throughout refers to income including the impact of non-recurring items, such as impairments, legal or restructuring charges, as well as gains or losses on asset sales. Apart from BP, all majors report this item for the upstream segment on a post-tax basis. BP reports this item on a pre-tax basis.
2) The 60 U.S. listed companies that dropped capex in Q1 2015 compared to average 2014: Abraxas Petroleum Corp., Anadarko Petroleum Corp., Antero Resources Corp., Apache Corp., Approach Resources Inc., Atlas Resource Partners L.P., Bill Barrett Corp., Bonanza Creek Energy Inc., Breitburn Energy Partners L.P., Cabot Oil & Gas Corp., California Resources Corp., Callon Petroleum Co., Carrizo Oil & Gas Inc., Chesapeake Energy Corp., Cimarex Energy Co., Clayton Williams Energy Inc., Comstock Resources Inc., CONSOL Energy Inc., Denbury Resources Inc., Devon Energy Corp., Diamondback Energy Inc., Emerald Oil Inc., Enerplus Corp., EOG Resources Inc., EP Energy Corp., EV Energy Partners L.P., Freeport-McMoRan Inc., Goodrich Petroleum Corp., Gulfport Energy Corp., Halcon Resources Corp., Hess Corp., Laredo Petroleum Inc., Linn Energy LLC., LRR Energy L.P., Marathon Oil Corp., Matador Resources Co., Memorial Production Partners L.P., Murphy Oil Corp., Noble Energy Inc., Northern Oil & Gas Inc., Oasis Petroleum Inc., Parsley Energy Inc., Penn Virginia Corp., PetroQuest Energy Inc., Pioneer Natural Resources Co., QEP Resources Inc., Rex Energy Corp., Rice Energy Inc., Rosetta Resources Inc., RSP Permian Inc., Sanchez Energy Corp., SandRidge Energy Inc., SM Energy Co., Southwestern Energy Co., Stone Energy Corp., Swift Energy Co., Ultra Petroleum Corp., Unit Corp., W & T Offshore Inc., Warren Resources Inc.
3) Upstream capex in this study excludes the impact of any asset dispositions.
About the author
Mark Young is a senior analyst with Evaluate Energy & CanOils.