European Oil Majors Tally $19 bln in Losses as Oil Prices Bite

February 29, 2016

How much has Big Oil in Europe lost in the last quarter? Try $19 billion — or slightly more than Iceland’s entire economy, writes MarketWatch.

The culprit is of course an unrelenting decline in crude CLJ6, -0.67%  and Brent LCOJ6, -0.17% prices through the period, when the contracts slid 18% and 24%, respectively. That sparked a round of significant impairment charges, project delays and reduced exploration among Europe’s major energy companies, with the majority of the Stoxx Europe 600’s SXXP, -0.98%  oil and gas producers reporting losses in the one-billion dollar territory.

“It’s been a mixed bag for oil company results — most have been pressured by weaker oil prices,” said Jason Kenney, head of pan-European oil equity research at Banco Santander, in emailed comments.

“Many have had to write down assets given the new oil price environment. The key to weathering the storm is disinvestment in our view — cutting costs, lowering capex, deferring spend, divesting peripheral businesses, offloading capital commitments, restructuring operations, and generally squeezing more from current operations for hopefully a lot less,” he added.

Earnings from Europe’s oil majors have trickled out through February and were rounded off with a set of downbeat fourth-quarter numbers from Italian oil giant Eni ENI, +0.08% on Friday. Eni said its quarterly loss more than tripled to 8.5 billion euros ($9.4 billion) in the final three months of the year, bringing the total tally of losses among the European oil majors to $19.3 billion, as shown in this table below.

Shell was the only company to eke out a decent profit at $939 million.

The numbers provided are net and not adjusted profit or loss numbers from the Stoxx 600’s oil and gas producers.

First-quarter blues

After such a rocky end to 2015, the question now is whether the industry is better positioned to deal with the lackluster oil market in the new year. Oil prices have remained under pressure in the first quarter, and continued to unsettle the sector and raise questions about which companies can survive the low-price environment.

Kenney from Banco Santander said the trick to survival is to improve efficiency and focus on “tough measures” to prepare for a long period of low prices. Many oil economists have recently cut their oil forecasts for 2016 as there are few signs that the supply glut in the market will abate any time soon.

“The winners will be those with balance sheet flexibility and robust cash management delivery strategies. The losers will likely be those less able to drive for cash balance [in the] near/medium term,” he said.

“Integrated large caps are likely to fair better than other companies in the value chain over coming months and years. The oil sector, however, is unlikely to outperform markets in the absence of a rebound in oil prices at least. The pressure is still very much on,” he said.

Among his preferred picks are France’s Total FP, -0.50% TOT, +0.77%  and Eni, which Banco Santander continues to rate at buy.