With the last of the financial statements from major producers out, it is clear that 2017 has been a much better year for the oil & gas industry, with profits for the fourth quarter and the full year on the upswing as the year-long gain in oil prices (thank you, OPEC) swelled revenue and profits. Most majors have echoed BP CEO Bob Dudley that ‘2017 was one of the strongest years in (BP’s) recent history’; yet, instead of boosting share prices, oil & gas stocks have seen a rout. Why?
The question is one of expectations versus reality. Within the cluster of five supermajors (including Total), only Shell, BP and Total managed to beat analyst expectations for Q417 results. Their American counterparts ExxonMobil and Chevron failed to meet forecasts. Despite a 750% y-o-y jump in Q417 net profits, Chevron’s figure came in just under predictions. However, ExxonMobil gave the biggest surprise, reporting Q417 profits that were 2% lower than Q416, the only red in a sea of black. Shell has now eclipsed ExxonMobil’s quarterly net profits for most of 2017, while BP has resumed share buybacks, a practice that remains suspended at ExxonMobil since 2016. Investors punished ExxonMobil for this, while concerns over crude prices losing steam pushed that stock price retreat across the industry.
Adding to this was a worldwide tumble across global financial markets, triggered by unexpected signs of inflation in the US that spooked investors into thinking that central banks might have to tighten policies more aggressively. The Dow Jones plunged 1000 points three times over a five-day period, with the malaise spreading to Europe and Asia. At time of writing, the share prices of the supermajors are some 5-15% lower from February 1. The losses have also extended to national oil companies (PetroChina shares are down 13% over the same period) and service firms (Schlumberger shares are down 12%), despite strong financial earnings reports.
There is reason to believe this is temporary. If 2017 was a good year for oil majors, 2018 promises to be even better. For ExxonMobil, its bumper discoveries in Guyana may start contributing to profits and production figures towards the end of the year, while Chevron’s Gorgon and Wheatstone LNG projects in Australia are finally off the ground. BP has seven major upstream projects coming up, while Shell seems finally at the end of its debt-cutting exercise to justify its purchase of the BG Group. Even technical service companies – which endured a bad 2016 and 2017 – are seeing their numbers tick up. Oil prices should stay around US$60/b, despite surging shale production. The current drag on share prices is only temporary; the fundamentals are enough to see a strong 2018 for oil & gas revenue and profits, which should be enough to push stock values up over the year.
Supermajor net profit results for Q417 (vs Q416)
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In its latest Short-Term Energy Outlook (STEO), released on January 14, the U.S. Energy Information Administration (EIA) forecasts year-over-year decreases in energy-related carbon dioxide (CO2) emissions through 2021. After decreasing by 2.1% in 2019, energy-related CO2 emissions will decrease by 2.0% in 2020 and again by 1.5% in 2021 for a third consecutive year of declines.
These declines come after an increase in 2018 when weather-related factors caused energy-related CO2 emissions to rise by 2.9%. If this forecast holds, energy-related CO2 emissions will have declined in 7 of the 10 years from 2012 to 2021. With the forecast declines, the 2021 level of fewer than 5 billion metric tons would be the first time emissions have been at that level since 1991.
After a slight decline in 2019, EIA expects petroleum-related CO2 emissions to be flat in 2020 and decline slightly in 2021. The transportation sector uses more than two-thirds of total U.S. petroleum consumption. Vehicle miles traveled (VMT) grow nearly 1% annually during the forecast period. In the short term, increases in VMT are largely offset by increases in vehicle efficiency.
Winter temperatures in New England, which were colder than normal in 2019, led to increased petroleum consumption for heating. New England uses more petroleum as a heating fuel than other parts of the United States. EIA expects winter temperatures will revert to normal, contributing to a flattening in overall petroleum demand.
Natural gas-related CO2 increased by 4.2% in 2019, and EIA expects that it will rise by 1.4% in 2020. However, EIA expects a 1.7% decline in natural gas-related CO2 in 2021 because of warmer winter weather and less demand for natural gas for heating.
Changes in the relative prices of coal and natural gas can cause fuel switching in the electric power sector. Small price changes can yield relatively large shifts in generation shares between coal and natural gas. EIA expects coal-related CO2 will decline by 10.8% in 2020 after declining by 12.7% in 2019 because of low natural gas prices. EIA expects the rate of coal-related CO2 to decline to be less in 2021 at 2.7%.
The declines in CO2 emissions are driven by two factors that continue from recent historical trends. EIA expects that less carbon-intensive and more efficient natural gas-fired generation will replace coal-fired generation and that generation from renewable energy—especially wind and solar—will increase.
As total generation declines during the forecast period, increases in renewable generation decrease the share of fossil-fueled generation. EIA estimates that coal and natural gas electric generation combined, which had a 63% share of generation in 2018, fell to 62% in 2019 and will drop to 59% in 2020 and 58% in 2021.
Coal-fired generation alone has fallen from 28% in 2018 to 24% in 2019 and will fall further to 21% in 2020 and 2021. The natural gas-fired generation share rises from 37% in 2019 to 38% in 2020, but it declines to 37% in 2021. In general, when the share of natural gas increases relative to coal, the carbon intensity of the electricity supply decreases. Increasing the share of renewable generation further decreases the carbon intensity.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook, January 2020
Note: CO2 is carbon dioxide.
GEO ExPro Vol. 16, No. 6 was published on 9th December 2019 bringing light to the latest science and technology activity in the global geoscience community within the oil, gas and energy sector.
This issue focusses on oil and gas exploration in frontier regions within Europe, with stories and articles discussing new modelling and mapping technologies available to the industry. This issue also presents several articles discussing the discipline of geochemistry and how it can be used to further enhance hydrocarbon exploration.
You can download the PDF of GEO ExPro magazine for FREE and sign up to GEO ExPro’s weekly updates and online exclusives to receive the latest articles direct to your inbox.
Headline crude prices for the week beginning 13 January 2020 – Brent: US$64/b; WTI: US$59/b
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