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COVID-19

Oil profits drop as companies feel pandemic, carbon pressure

Sabri Ben-Achour Feb 4, 2021
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Oil and gas companies are grappling with uncertainty as they look to the future. Leon Neal/AFP via Getty Images
COVID-19

Oil profits drop as companies feel pandemic, carbon pressure

Sabri Ben-Achour Feb 4, 2021
Heard on:
Oil and gas companies are grappling with uncertainty as they look to the future. Leon Neal/AFP via Getty Images
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It would be an understatement to say the past year has been tough for oil and gas companies worldwide.

ExxonMobil reported a loss of $22.4 billion in 2020 if you include write-downs. Royal Dutch Shell said Thursday that its annual profit dropped 71% from the previous year. BP lost $5.7 billion. ConocoPhillips, out $2.7 billion. Chevron lost $5.5 billion. In 2020, oil demand saw its steepest decline in modern history.   

“They’ve been to hell and back,” said Michael Lynch, president of Strategic Energy and Economic Research.

As if pandemic-fueled loss of demand wasn’t enough, oil companies are facing increased pressure to help bring about a carbon-free future.

With more than 500 oil- and gas-related companies having declared bankruptcy, the survivors are taking a long, hard look at efficiency.

According to Clark Sackschewsky, with accounting firm BDO, they are “finding the most effective way to get every molecule out of the ground.” Plus, companies are cutting costs by shutting down expensive wells and trimming their investments in new ones. 

In the next few quarters, Lynch said, oil and gas corporations should actually generate modest profits and see some recovery going forward. “People should be careful about thinking the pandemic reflects a new normal.” 

But a very different normal is coming — a lower-carbon normal. Europe has legally committed to being carbon neutral by 2050.  The Biden administration has rejoined the Paris climate agreement. 

Companies have time to deal with the pressures brought on by climate change, said Duane Dickson, who leads U.S. oil, gas and chemicals at Deloitte. “The transition’s gonna take a while. Nothing’s gonna happen overnight,” he said.  

Oil companies are preparing for the future at different paces, said Pavel Molchanov, an energy analyst at Raymond James. “The cutting edge of this process, the first movers, are in Europe,” he added.

BP, formerly British Petroleum, has said it wants to cut back oil and gas production by 40% over the next decade and ramp up its investment in renewable energy tenfold.

Molchanov said that “the earlier companies can establish a foothold in these emerging opportunities, the better it will be. Five years from now, it will be much more crowded and competitive.”

American oil producers like ExxonMobil and Chevron have been slower to make grand commitments. But they still have some time. 

COVID-19 Economy FAQs

What’s the outlook for vaccine supply?

Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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