Coronavirus Affects Oil Companies’ Gains

The national oil company of Kazakhstan KazMunayGas (KMG) recorded a decline in almost all segments of its activities during the first half of 2020. Among the most affected are crude oil refining and oil productproduction because KMG was forced to reduce both of them in order to avoid overstocking.

Big global private oil companies operating in Kazakhstan such as Chevron, ExxonMobil, and Shell have also announced multi-billion-dollar losses.

Upstream

The level of oil and gas condensate production at KMG, which has stakes in various production companies, decreased by 3.1% in the first half of this year, to 11.3 million tons. The output of Tengiz, Kashagan and Karachaganak oil fields was roughly four million tons of oil and three billion cubic meters of gas, which is higher than last year’s figures by 2.2% and 4.3% respectively. However, oil production at KMG’s operating assets fell by almost 6%. According to the company, this drop might be explained by «the natural decline in production at the Kazgermunai (by 29.6%) and PetroKazakhstan Inc. (by 22.9%) oil fields.

Chevron Corporation, the main shareholder of Tengizchevroil LLP, in the first half of the year produced over 3.1 million barrels of oil equivalent (BOE) a day on average or 1.6% higher than the same periodlast year. However, the results for the second quarter are lower by 3% against last year’s figures and by 8% compared to the first quarter. Due to falling demand, the company was forced to cut oil production. Another American oil giant, ExxonMobil, did the same, cutting its daily oil production by 2.6% to 3.8 million BOE. The company’s output in the second quarter decreased by 7% compared to the first quarter.

“Market prices for crude oil rose after falling sharply at the end of the first quarter. However, sales of crude oil and natural gas in the second quarter were significantly lower due to oversupply in the market and the impact of COVID-19 on global demand,» ExxonMobil said.

British-Dutch Shell also reduced oil production in the second quarter by 5.6% to 3.3 million barrels per day. As the company noted, the main reasons for that are the drop in demand and oil cuts under the OPEC+ agreement.

Downstream

The refining industry was severely hit by the pandemic. Due to the low demand for fuel in the first half of the year, the total volume of oil processing at KMG’s refinery factories decreased by 17.1% or about 8.3 million tons.

In Kazakhstan, the output of the Atyrau oil refinery plant decreased by 2.4%, the Pavlodar petrochemical plant did the same by almost 17%, and the PetroKazakhstan Oil Products LLP refinery in Shymkent by 14%. At the same time, Romanian refinery plants Petromidia and Vega reported a decline of 32.3% and 23.6% respectively. The nature of the output decline in Kazakhstan and Romania was different. Kazakhstani plants had been trying to avoid overstocking, while the Romanian plants reported production decline due to overhaul at the Petromidia plant. As a result, the combined volume of production at Kazakhstani and Romanian refineries decreased by 18.3% to 7.6 million tons. At Kazakhstani refineries, the output fell by 11.3% to 5.4 million tons and at Romanian by 31.5% to 2.2 million tons.

Refining volume at Chevron plants in the first half of the year decreased by 10.3% to 1.385 million barrels per day. The company’s operations in the United States brought a loss of $538 million against a profit of $682 million in the previous year while refineries in other countries increased profits by 111% to $631 million. However, the company’s revenue declined in the second quarter both in the U.S. and abroad. In general, oil refining activities at the American market brought the company a loss of $988 million, compared to $465 million in profit a year earlier. International operations led to a loss of $22 million compared to a profit of $264 million last year. The decline in refining as well as in revenue were mainly due to a decrease in the margin from oil product sales, the company said.

ExxonMobil’s refineries’ output also decreased in the first half of the year by 10% to 3.788 million barrels per day. The company lost in refinery about $202 million compared to a profit of $149 million a year earlier. International operations instead became a source of profit that has risen more than 12 times to $567 million. According to the company, the growth outside the U.S. market is based on a higher margin and lower costs. However, in the second quarter, industrial fuel sales were significantly lower than in the first quarter, reflecting the impact of COVID-19 on demand for gasoline and jet fuel. The average refinery charging decreased by 30% compared to the first quarter due to a drop in demand.

The British-Dutch Shell refining also decreased in the first half of the year by 18% to 2.170 million barrels per day with lowered sales by 29% to 4.659 million barrels per day. Profit from refining amounted to $811 million with a decline of 132% compared to the same period last year. The reason for this decline is a global drop in demand for oil products because of the pandemic. In the second and first quarters, the refinery charging was 70% and 76% respectively.

Revenues

As a result of the lower demand for oil products in the first half of the year, the revenues of oil companies decreased significantly. KMG did not reveal its financial results yet; therefore, it’s unclear how the company’s revenue has changed. In the first quarter of this year, the KMG net profit declined more than four times to 69.5 billion tenge ($166.2 million), compared to 309.2 billion tenge ($739.4 million)earned in the January-March period of 2019.

Chevron Corporation reported a net loss of over $4.6 billion in the first half of the year against a profit of $6.9 billion last year.

“Because of the economic impact of COVID-19, demand for our products has fallen and commodity prices lowered,” said Michael Wirth, CEO of Chevron.

In the second quarter, the company had been selling oil and gas at$19 per barrel on average compared to $52 last year. The company also noted the financial results may continue to decline in the third quarter of 2020 even though demand and commodities prices showed signs of recovery.

ExxonMobil announced a six-month loss of $1.6 billion against a profit of $5.4 billion a year earlier.

«The pandemic and oversupply have had a huge impact on our financial results in the second quarter because of lower prices, margins and sales volumes,» said Darren Woods, CEO of ExxonMobil.

The company’s capital and exploration expenditures were cut by 16.6% over the last six months to $12.4 billion. However, ExxonMobil still pursues further cost cuts.

According to Bloomberg experts, Chevron recorded its worst performance in at least three decades, and ExxonMobil’s second-quarter loss was the deepest since its 1998 merger deal with Mobil Corporation.

Net loss of Shell in the first half of the year reached $18.1 billion, compared with a net profit of $9 billion in the same period of 2019. However, these results also include an impairment loss of $16.8 billion after tax. As the company noted, in the second quarter of this year, it revised its medium and long-term forecasts for prices and refining margins given the expected impact of the pandemic on supply and demand. As a result, a significant part of tangible and intangible assets in the field of exploration, production, and processing of oil and gas were reassessed.