The world's top energy companies have slashed the value of their oil and gas assets by around $80 billion in recent months after revising lower the long-term outlook for fuel prices in the wake of the coronavirus epidemic and the energy transition.
Exxon Mobil Corp., the largest U.S. oil company, announced on Nov. 30 it would write down the value of natural gas properties by $17 billion to $20 billion, its biggest ever impairment following the sharp drop in energy prices this year.
It follows similar steps by rivals including Royal Dutch Shell Plc, BP Plc and Chevron Corp. since late 2019.
The so-called oil majors are "acknowledging overly optimistic commodity price views of yesteryear," said Bernstein analyst Oswald Clint.
Most of Exxon Mobil's impairments focused on legacy assets from its $30 billion acquisition of U.S. shale producer XTO Energy in 2010, a deal former CEO Rex Tillerson had previously said was "ill-timed."
Following the impairments, companies will focus on the parts of the business that are able to withstand the lowest oil and gas prices, Clint said.
"Balance sheets now reflect the lowest portfolio break-evens in two decades and therefore the most resilient to future commodity price shocks."
Exxon Mobil did not disclose its new commodity price outlook. The value of the oil majors plummeted in 2020 after energy demand collapsed due to the pandemic.
The shares of Exxon Mobil, Shell and BP have lost over 45% so far this year, more than benchmark Brent oil prices that have lost around 27% and stand today near $48/bbl.
The impairments made by the European majors also came after they lowered their long-term oil prices forecasts as they prepare to increasingly switch to renewable energy in the coming decades to reduce carbon emissions to net zero.
The revisions might nevertheless lead to a sharp rise in oil prices in the coming years as a result of lower investments in new projects, Clint said.
"We're staring into the abyss when it comes to supply and demand balances due to a dearth of much needed capital investment."
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