European oil and gas industry reveals extent of Covid-19 damage

Matthew Farmer 29 April 2020 (Last Updated April 29th, 2020 17:46)

Offshore Technology takes a look at how oil and gas operators in European countries are faring in one of the most difficult economic climates imaginable.

European oil and gas industry reveals extent of Covid-19 damage
European producers are holding their quarterly meetings, giving an insight to the damage caused by Covid-19. Credit: OMV.

As the first quarterly results of 2020 roll in from most oil and gas companies, the full extent of damage to industry profits is starting to show. Offshore Technology takes a look at how oil and gas operators in European countries are faring in one of the most difficult economic climates imaginable.

On Monday, British industry body Oil and Gas UK (OGUK) announced the results of a survey of its members. It found up to 30,000 North Sea jobs could be lost, as Covid-19 causes cuts to costs and investment. This would represent around 20% of all North Sea workers, half the 40% predicted by the RMT trade union recently. However, it did say these figures came with “a significant degree of uncertainty in estimates affecting the next 12 to 18 months”.

OGUK Chief Executive Deirdre Michie said: “With historic low oil and gas prices coming so soon after one of the most severe downturns our sector has experienced, these findings confirm an especially bleak outlook for the UK’s oil and industry. If the UK is to maintain its supply of domestic energy, protect jobs and build the critical infrastructure it needs to transition to a net-zero future; ours is an industry worth fighting for.”

Eni – Net profits down 44%

Last week, Italian operator Eni announced its first-quarter 2020 net profits were down by 44% year-on-year, a fall in net profit of $1.08 (€1bn).

Exploration and production revenue alone fell by $1.38bn (€1.27bn), a 55% decrease on the previous year. By comparison, actual production levels were down 3.6% compared with Q1 2019.

Despite global conditions, the company began production offshore Angola as well as drilling a second appraisal well there.

Eni is more diversified than many operators, and it has significant renewable energy and chemical operations. In the first quarter, it opened a bioethanol plant, a photovoltaic plant and a wind farm. Ventures like these have protected its profits from the worst fallout of oil price volatility. However, executives were still keenly aware of the difficulties ahead.

CEO Claudio Descalzi said: “The upstream portfolio, in particular, has a competitive break-even point and is flexible, allowing for activities and financial commitments to be adjusted as the situation develops. The Mid-Downstream portfolio is reacting well to the consumer crisis, recording earnings before income tax (EBIT) higher than in the same period in 2019. Overall, EBIT was above market forecasts, while cash flow from operations before working capital financed investments of €1.9 billion.”

BP – Underlying profits down 66%

British oil producer BP made headlines on Tuesday when its first-quarter results showed a huge fall in profits. Compared to the same period in 2019, it made 66% less underlying profit, taking into account the cost of supply.

In its report, the company said this was down to the ongoing demand slump and price crash. Upstream profit before tax was more than halved, falling to $1.02bn from $2.88bn the year before.

While spending on existing assets was roughly the same, but new acquisitions fell from $2bn to $0.3bn. BP’s existing inventory depreciated in value by $4.88bn.

This month marks ten years since the beginning of the Deepwater Horizon oil spill. The company is still paying for the spill, costing it $281m in the first quarter of the year.

With a huge loss in the price of shares, the company broke rank with many others and decided to pay a small dividend to shareholders. It also reconfirmed its commitment to a green transition.

CFO Brian Gilvary said: “Our underlying businesses performed well in the first quarter, although our headline results were impacted by foreign exchange as well as price effects at the quarter-end. We have developed a clear plan and are confident in increasing resilience in our financial framework through a set of interventions focused on building liquidity, strengthening our balance sheet and reducing expenditure to drive our cash balance point below $35 per barrel in 2021.”

OMV – Profits down 8%

On Wednesday, Austrian producer OMV gave its quarterly results briefing. This saw an 8% year-on-year drop in regular earnings factoring in the current cost of supply. This is worth $65m (€60m).

Its upstream earnings were much more intensely hit, falling by 65%. OMV’s product inventory lost $486m (€448m) of worth as the price of Brent crude oil fluctuated.

The company is cutting $651m (€600m) of investments and $217m (€200m) to reinforce profitability.

OMV recently confirmed its purchase of the controlling stake in petrochemicals company Borealis. It did this as part of a diversification program, moving away from oil and gas in the long term. This deal will now be paid for in two blocks, with the second not due until the end of 2021.