Collapsed commodity prices led to huge Q2 losses

A group of 57 US-based oil and gas producers and refiners recorded a total net loss of $38.2 billion in the second quarter of 2020, compared to income of $16.37 billion in the second quarter of 2019. Total revenues were $104.91 billion for the quarter, compared to $248.72 billion a year ago.

Companies’ results in the second quarter of 2020 were significantly impacted by the COVID-19 pandemic, which has lowered demand for both crude oil and refined products and, combined with the OPEC+ increase in supply, resulted in a significant decline in commodity prices.

Brent crude oil prices averaged $29.34/bbl in second-quarter 2020, compared with $68.92/bbl a year earlier and $50.44/bbl in first-quarter 2020. West Texas Intermediate (WTI) averaged $27.8/bbl in second-quarter 2020, compared with $59.78/bbl in second-quarter 2019 and $45.76/bbl in first-quarter 2020.

For second-quarter 2020, US crude oil production averaged 10.58 million b/d, compared to 12.13 million b/d in second-quarter 2019. US natural gas liquids production averaged 4.86 million b/d during the quarter, compared to 4.81 million b/d a year ago.

According to Baker Hughes, the number of active oil rigs in the US fell from 624 at the end of March to 188 at the end of June. This compared to 793 rigs at the end of last year’s June.

US commercial crude oil stock at the end of June was 539 million bbl, compared to 464 million bbl at the end of second-quarter 2019 and a 5-year average of 463.4 million bbl.

US refinery inputs were 13.65 million b/d in the second quarter of 2020, compared with 17.14 million b/d in second-quarter 2019. Refinery utilization rate averaged 72.8% for the quarter, compared to 91.2% a year earlier.

According to Muse, Stancil & Co, refining cash margins in the second quarter of 2020 averaged $3.58/bbl for Middle-West refiners, $4.14/bbl for West Coast refiners, $2.04/bbl for Gulf Coast refiners, and $1.48/bbl for East Coast refiners. In the same quarter of the prior year, these refining margins were $20.17/bbl, $16.03/bbl, $6.54/bbl, and $2.44/bbl, respectively.

Henry Hub natural gas spot prices averaged $1.83/MMbtu in the second quarter of 2020, compared to $2.56/MMbtu a year earlier. US dry gas production for the quarter dropped to 89.22 bcfd, compared to 90.5 bcfd a year earlier and 94.5 bcfd for the first quarter of 2020.

A sample of 11 oil and gas producers and pipeline companies with headquarters in Canada posted total net income of $680 million (Canadian dollars) in the second quarter of 2020, as the losses posted by Canadian oil and gas producers were offset by gains from pipeline companies. The same group recorded net income of $11.59 billion in the prior year’s second quarter.

Western Canadian Select (WCS) at Hardisty averaged $16.35/bbl for the second quarter of 2020, compared to $49.20/bbl for the second quarter of 2019.

US producers

Exxon Mobil Corp. estimated a second-quarter 2020 loss of $1.1 billion compared with a first-quarter loss of $610 million and second-quarter 2019 earnings of $3.1 billion. Results included a noncash inventory valuation adjustment from rising commodity prices of $1.9 billion. Capital and exploration expenditures were $5.3 billion for the quarter, about $2 billion lower quarter-over-quarter.

Oil-equivalent production was 3.6 million b/d, down 7% from second-quarter 2019, including a 3% decrease in liquids and a 12% decrease in natural gas.

Plans to reduce capital investment during the year, to $23 billion from $33 billion, are ahead of schedule, reflecting increased efficiencies, lower market prices, and slower project pace, the company said. An expected decrease in cash operating expenses of about 15% is also ahead of schedule, capturing savings from increased efficiencies, reduced activity, and lower energy costs and volumes.

For the downstream segment, industry fuels margins were considerably lower than in the first quarter, reflecting the impacts of COVID-19 on demand for gasoline and jet fuel. The company experienced unfavorable mark-to-market derivative impacts associated with its trading activity, compared to favorable impacts in the previous quarter.

Average refinery utilization was down significantly from the first quarter on lower demand, as the company spared about 30% of its refining capacity. Over the course of the quarter, utilization increased in line with global fuel demand.

In the chemicals segment, margins were largely consistent with the first quarter. Chemical sales volumes however, while benefiting from resilient demand for essential products, were lower than the first quarter driven by the impacts of COVID-19 on global demand.

Chevron Corp. reported a loss of $8.3 billion for second-quarter 2020, compared with earnings of $4.3 billion in second-quarter 2019. Included in the second quarter results were impairments and other net charges of $1.8 billion primarily associated with downward revisions to the company’s commodity price outlook, severance accruals of $780 million, and a gain of $310 million on the sale of Azerbaijan assets.

The company also fully impaired its $2.6 billion investment in Venezuela due to uncertainty associated with the current operating environment and overall outlook. Foreign currency effects decreased earnings by $437 million. Excluding the special items, the adjusted loss of $3.0 billion in the second quarter compares to adjusted earnings of $3.4 billion in second-quarter 2019.

Sales and other operating revenues in the quarter were $16 billion, compared to $36 billion in the year-ago period. Second quarter organic capital expenditures were $3.0 billion, 40% below the quarterly budget, and year-to-date organic capital expenditures are on track with the company’s revised full year guidance of $14 billion.

Chevron’s worldwide net oil-equivalent production was 2.99 million b/d in second-quarter 2020, a decrease of 3% from a year ago, and down 8% from first-quarter 2020. The decrease was largely a result of curtailed production in response to low commodity prices and asset sales, partially offset by net production increases in a number of properties.

The company recently entered into a definitive agreement to acquire Noble Energy in an all-stock transaction (OGJ Online, July 20, 2020).

ConocoPhillips reported second-quarter 2020 earnings of $260 million, compared with second-quarter 2019 earnings of $1.58 billion. Excluding special items, second-quarter 2020 adjusted loss was $1.0 billion, compared with second-quarter 2019 adjusted earnings of $1.1 billion. Special items for the current quarter include a realized gain on the completion of the Australia-West divestiture and an unrealized gain on Cenovus Energy equity.

For the quarter, net cash provided by operating activities was $157 million, down from $2.89 billion for the same quarter a year ago.

Production excluding Libya for the quarter was 981,000 boe/d after curtailments of 225,000 boe/d, resulting in a decrease of 309,000 boe/d from the same period a year ago. Adjusting for closed dispositions, second-quarter 2020 production was 957,000 boe/d, a decrease of 212,000 boe/d from the same period a year ago.

Based on the company’s economic criteria, ConocoPhillips restored curtailed production in Alaska during the month of July. The company also began bringing some curtailed volumes in the Lower 48 back online in July and expects to be fully restored in September. At Surmont, the company began restoring production in July though the ramp up will be slower due to planned turnarounds in the third quarter and limited staffing in the field as a COVID-19 mitigation measure.

During the quarter, ConocoPhillips completed the Australia-West divestiture, generating $800 million in proceeds. The company also announced bolt-on acquisition of adjacent acreage in the liquids-rich Montney in Canada.

Continental Resources reported a net loss of $239.3 million for the second quarter of 2020, compared to earnings of $236 million for the second quarter of 2019. Adjusted net loss for second-quarter 2020 was $255.7 million, compared to net earnings of $219 million for the same quarter a year ago.

During the second quarter, about 55% of the company’s operated oil volumes were shut in. Total production for the second quarter averaged 202,815 boe/d, down nearly 40% from a year ago. As of June 30, the company had 215 wells in progress and expects to end the year with 140.

Continental Resources is on track to achieve its previously revised 2020 capex guidance of $1.2 billion or lower, a 55% decrease from original guidance of $2.65 billion.

The company said that its Bakken completed well cost has decreased 12% year-over-year to $7.2 million per well, with about 70% of the savings being structural and South completed well cost has decreased 10% year-over-year to $9.5 million per well, with about 80% of these savings being structural.

Devon Energy Corp posted a net loss of $670 million in second-quarter 2020 compared to a net loss of $1.8 billion in first-quarter 2020. The quarterly result was negatively impacted by a $593 million unrealized change in the fair value of the company’s derivative position due to higher futures commodity pricing. Adjusting for items analysts typically exclude from estimates, Devon had a core loss of $66 million.

Second-quarter oil production averaged 153,000 b/d, a 6% increase from the year-ago period, exceeding the company’s midpoint guidance by 3,000 b/d from better-than-expected base production performance in the Eagle Ford and Anadarko basin.

Due to low oil prices in the quarter, Devon elected to voluntarily curtail 10,000 b/d. As oil prices have stabilized and begun to recover, the company has no plans to curtail production in second-half 2020. Devon exited the quarter running 9 operated drilling rigs and 1 completion crew.

Diamondback Energy’s second-quarter 2020 net loss of $2.39 billion includes a non-cash impairment charge of $2.54 billion as a result of the lower SEC pricing due to the sharp decline in commodity prices. Adjusted net income was $23 million for the quarter.

Average oil production for the second quarter was 176,323 b/d, compared to 191,229 b/d for the second quarter of 2019. During second-quarter 2020, Diamondback drilled 37 gross horizontal wells in the Midland basin and 21 gross horizontal wells in the Delaware basin. The company turned 10 operated horizontal wells to production in the Midland basin and 5 operated horizontal wells in the Delaware basin. The average lateral length for the wells completed during the quarter was 11,256 ft.

Assuming a continuation of current market conditions, Diamondback plans to operate 5-6 operated drilling rigs and 3-4 completion crews for the remainder of 2020.

Hess Corp. reported a net loss of $320 million in second-quarter 2020, compared with a net loss of $6 million in second-quarter 2019. Exploration and production net loss was $249 million in the second quarter, compared with net income of $68 million in the same quarter a year earlier.

Net production, excluding Libya, was 334,000 boe/d in second-quarter 2020, up 22% from second-quarter 2019 net production of 273,000 boe/d. The improved performance primarily resulted from a 39% increase in Bakken production and production from Liza field, offshore Guyana, which began in December 2019.

US independent refiners

Marathon Petroleum Corp. reported net income of $9 million for the second quarter of 2020, compared to $1.1 billion for the second quarter of 2019. Second-quarter 2020 results include a pre-tax lower of cost or market (LCM) inventory benefit of $1.5 billion. Adjusted net loss was $868 million for the second quarter of 2020, compared to adjusted net income of $1.1 billion for the second quarter of 2019.

Refining and Marketing segment loss from operations was $1.6 billion in the second quarter of 2020, compared with income of $906 million for the second quarter of 2019.

R&M margin was $7.13/bbl for the second quarter of 2020. Crude capacity utilization was 71%, resulting in total throughputs of 2.3 million b/d. These compare to crude capacity utilization of 97% for the second quarter of 2019 and total throughputs of 3.13 million b/d.

Phillips 66 announced a second-quarter 2020 loss of $141 million, compared with a loss of $2.5 billion in the first quarter of 2020. Excluding special items, the company had an adjusted loss of $324 million, compared with first-quarter adjusted earnings of $450 million.

Refining had an adjusted pre-tax loss of $867 million in the second quarter of 2020, compared with an adjusted pre-tax loss of $401 million in the first quarter of 2020. The decreased results were largely driven by lower realized margins and reduced volumes, partially offset by lower controllable costs.

Second-quarter realized margins were $2.60/bbl, down 63% from the prior quarter due to a decline in 3:2:1 market crack spreads and lower clean product realizations, partially offset by higher secondary product margins. Phillips 66’s worldwide crude utilization rate was 75% in the second quarter, down from 83% in the first quarter.

The Chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals’ second-quarter 2020 pre-tax income was $42 million, compared with $169 million in the first quarter of 2020.

Valero Energy Corp. reported net income of $1.3 billion for the second quarter of 2020 compared to net income of $612 million for the second quarter of 2019. Adjusted net loss was $504 million for the second quarter of 2020, compared to second quarter 2019 adjusted net income of $665 million. Second quarter 2020 adjusted results exclude the benefit from an after-tax lower of cost or market, or LCM, inventory valuation adjustment of $1.8 billion.

Refinery throughput volumes averaged 2.3 million b/d in the second quarter of 2020, which was 647,000 b/d lower than the second quarter of 2019.

Canadian firms

All financial figures are presented in Canadian dollars unless noted otherwise.

Suncor’s net loss was $614 million in the second quarter of 2020, compared to net earnings of $2.73 billion in the prior year quarter. Suncor’s second quarter 2020 operating loss was $1.49 billion, compared to operating earnings of $1.25 billion in the prior year quarter.

Besides the significant decrease in crude oil and refined product realizations, the second quarter of 2020 was also impacted by the realization of $397 million in after-tax hydrocarbon inventory losses, recognized in net earnings in the first quarter of 2020, and a FIFO inventory valuation loss of $146 million after-tax on the decline in value of refinery feedstock.

Total upstream production decreased to 655,500 boe/d during the second quarter of 2020 from 803,900 boe/d in the prior year quarter as the company managed production to keep pace with reduced downstream demand.

Refinery crude throughput was 350,400 b/d and refinery utilization was 76% in the second quarter of 2020, compared to crude throughput of 399,100 b/d and refinery utilization of 86% in the prior year quarter.

Imperial Oil recorded an estimated net loss of $526 million in the second quarter of 2020. The results included a reversal of the non-cash inventory revaluation charge of $281 million recorded in the first quarter of 2020.

Upstream production for the second quarter was 347,000 boe/d, compared to 400,000 boe/d in the second quarter of 2019, as turnaround activities were revised in response to COVID-19. In the downstream, refinery throughput averaged 278,000 b/d, with overall utilization at 66% for the quarter.

TransCanada Energy had second-quarter 2020 net income of $1.3 billion, compared with net income of $1.1 billion for the same period in 2019. The company continued to advance $37 billion in capital projects, placing about $3 billion of assets into service during first-half 2020: Nova Gas Transmission Ltd. (NGTL) system ($2.9 billion) and Canadian Mainline capacity ($100 million).

TransCanada also continued construction activities on the 670 km (420 mile), 2.1 bcfd Coastal GasLink natural gas pipeline while selling a 65% equity interest in the project to KKR-Keats Pipeline Investors II (Canada) Ltd. and a subsidiary of Alberta Investment Management (AIMCo) and entering secured long-term project financing credit to fund most of the construction costs, resulting in combined net proceeds of $2.1 billion. As part of the transaction, TC Energy was contracted by Coastal GasLink Pipeline LP to construct and operate the pipeline.