Global industry is in the midst of a severe downturn, due to the COVID-19 pandemic and its impact on national economies. To preserve the health of the company, the world's largest and strongest energy producers, often referred to as oil super majors, cut production, lay off thousands of workers and cut their once-sacred dividends as they struggle to save money.
Even as this massive restructuring is taking place, investors are looking for signs of a rebound in demand so that they can take advantage of these companies' downward stock prices.
The following is a summary of the key points reported during last week's quarterly earnings of the world's three largest oil companies. Our goal: to see if these players see the bottom in the destruction of demand, which lowered the benchmark price from $ 70 to $ 26 a barrel four months ago.
1. ExxonMobil: Seeing Encouraging Early Signs
Exxon Mobil (NYSE: NYSE :), the largest American producer, placed it in at least three decades and reported a hit of $ 610 million after it cost $ 3 billion in impairments during Q1 2020 when it released results on Friday, May 1
The global economic shutdown has forced Exxon to cut $ 10 billion in planned investment expenditures in 2020, a budget cut of 30%. The Irving, TX oil and gas exploration and production giant has entered this crisis as it took a radical approach to value creation.
While other oil companies focused on strengthening their cash positions by avoiding large ticket investments, Exxon devoted significant resources to new initiatives.
Despite bleak forecasts of post-pandemic oil demand, Exxon maintained its long-term optimism about future demand growth. Indeed, the company chose to keep its now a whopping 8.07%, making a quarterly dividend, making an annual payout of $ 3.48 per share.
During the profit call, CEO Darren Woods told investors:
"We see improvements in all three markets, we have seen volumes increase in Europe in May, we see that happening in the US and we see that in Asia, too",
"There are some, I would say, that encourage early signs."
Nevertheless, Exxon's shares have fallen by 37% this year.
2. Chevron: Bumping Along A Bottom For Energy Demand
Exxon rival, Chevron (NYSE 🙂 reported $ 3.6 billion in profit, 36% more than in the same period last year, during the Q1 2020 report on Friday. However, it expects its financial position to weaken later in the year as a result of the oil price crash caused by the pandemic.
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Chevron also announced additional budget cuts, saying it would cut capital expenditures by $ 2 billion on top of the $ 4 billion it announced a few weeks earlier.
"Industry and the world are in a difficult place, {{0 | now}
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"It feels like we hit a floor to energy demand when we look at the data. But it doesn't say it will go back."
However, Wirth emphasized that the company's quarterly dividend, which currently yields 5.77% with an annual distribution of $ 5.16, remains a priority.
Unlike Exxon, Chevron was already in defensive mode after a massive run-down of its holdings late last year absorbed the worst loss in over a decade. That divergence helps the producer's stock, which recovers faster than Exxon's shares from the low of March 23. Chevron's stock has fallen by 26% this year.
3. Royal Dutch Shell: the dividend drastically reduced
Among the oil super majors came the biggest disappointment of Royal Dutch Shell (NYSE :), which announced on Thursday April 30 that it reported Q1 results, that it cut its dividend drastically for the first time since at least World War II.
Shell will save $ 10 billion annually if quarterly distributions drop from $ 0.47 previously to $ 0.16 per share, with a simultaneous decline in returns from 9.89% previously to 4.09% at the time of writing. The company's adjustment was $ 2.86 billion in the first quarter, down 46% from a year earlier.
Shell made this decision because it faces an "uncertainty crisis" over energy consumption, prices, and perhaps even the viability of some of its assets, Shell director Ben van Beurden said in an interview with Bloomberg TV. The dividend cut was based on "a rather bleak scenario" and "we don't know what will be on the other side of this pandemic."
The pandemic will lead to lasting changes in the world's energy consumption, and it is difficult to say whether oil demand will ever return to 2019 levels, Van Beurden said. Shell's stock has fallen by 45% since the beginning of the year.
Bottom Line
The massive cutbacks in oil companies show that recovery of oil demand will be a slow and lengthy process. That uncertainty will still endanger their shares even after the significant fall in the past two months.
