Global Oil Majors Accumulate Debt
September 1, 2020
The energy markets are a big fuzz ball of indecision just waiting on something. The longer the markets congest near current levels the bigger the potential move once it breaks. On the downside you have large inventories and concerns about demand due to C)VID. On the side of support for energy prices you have the equities markets that continues to trade higher on the back of the actions by the Federal Reserve, but eventually the stimulus from the Fed’s actions will run out of time. The hard part is no one know how long the time frame is, weeks, months, a year? You also have positive data from China which is a good sign for their recovery and energy demand.
Reuters has a story about the poor track record of big oil on investment and acquisitions. Here are just a few snippets of the article I find interesting at this time:
“The collapse in oil prices since COVID-19 struck has also forced the big companies to wipe billions of dollars off the value of their assets and it has also hit revenue to the point they’ve taken on more debt to keep up payments to shareholders.”
“All told, the world’s top energy companies have booked asset writedowns totaling $60 billion this year following the slide in oil prices and demand during the coronavirus pandemic.”
“Energy companies listed in the S&P 500 index accounted for 60% of $329 billion in write-offs over the past decade, according to Evercore ISI analyst Doug Terreson.”
“And since 2005, the combined debt of the top five global oil majors, which include Shell, BP and Total, has risen five fold to $370 billion. That means much of the cash they will generate in the coming years will probably go towards cutting debt.”
Reuter’s polls show that price outlook for 2020 US crude is expected to rise to $38.82 from July’s estimate of $37.51. Global demand, however, was seen contracting more steeply this year from 8-10 million bpd versus the July forecast of 7.2-8.5 million bpd. Analyst suggest that air travel drove that shift and is expected to be impacted more than previously anticipated.