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The Performance of the World's Oil Companies is Declining
Recently, the 2019 financial reports of many oil companies around the world have been released. According to incomplete statistics from the International Energy Network reporter, the overall performance of the 13 world's top oil companies in 2019 was not good, and the performance of most oil companies showed a downward trend. Revenue decline, net profit plunge, and net cash flow depletion have spread to internationally renowned oil companies. Even leading companies in the oil industry such as Shell saw a revenue reduction of US$44.5 billion in 2019, and net profit fell by 32.16%. Schlumberger was the company with the most serious net profit loss, with a loss of US$10.14 billion, a decline of 574.13%, which is shocking.The international oil market has been in a sluggish state in recent years, and it was even more serious in 2019. The rising exploration costs and falling natural gas prices caused the operating performance of many oil companies to decline in 2019. According to incomplete statistics from the International Energy Network reporter, 8 of the 13 world oil companies saw a decline in revenue, accounting for 61.54%, and three of them saw a decline in revenue of more than 10%.
It is gratifying that Petrobras' revenue rose against the trend, up 30.79%, becoming the company with the largest performance increase among the 13 companies. In 2019, Petrobras' average daily oil production was 2.172 million barrels, exceeding the target production of 2.1 million barrels, and the production in the pre-salt area also set a record. In addition, Petrobras also sold some non-core assets last year, involving an amount of up to US$16.3 billion, which is also an important reason for Brazil's good performance in both revenue and net profit.
If the revenue of world-renowned oil companies is still unclear about the development trend of the industry, the general decline in net profit reveals the sluggish development of the entire oil industry in 2019. The reporter of International Energy Network found that among the 13 internationally renowned oil companies, only three companies, namely Rosneft, Petrobras and ConocoPhillips, achieved growth, while the net profits of the remaining 10 companies declined, among which Schlumberger had the most severe decline, down 574.13% year-on-year.
Schlumberger's performance decline was already evident in the first quarter of 2019. The company's proud "drilling" and "production" two trump card departments, both saw a decline in profits in the first quarter of 2019, with drilling revenue of US$2.4 billion, a year-on-year decline of 3%, and production revenue of US$2.9 billion, a year-on-year decline of 2%. Although the company's performance in the second quarter increased month-on-month, the net loss in the third quarter was US$11.383 billion, which was even twice the total profit of Schlumberger in the past three years.
It is reported that more than US$8.8 billion in expenses were attributed to the acquisition of Houston oilfield services company Smith International in 2010 and Houston marine services company Cameron International in 2016. In addition, there was an asset write-down of US$1.6 billion related to the pressure pump business in North America, part of which was used for severance pay in North America. It can be said that Schlumberger has been injured and it is difficult to restore performance in a short time.
Judging from the debt situation of 13 internationally renowned oil companies that have announced their 2019 financial reports, the overall debt level is not high. Except for Chesapeake Energy, whose debt-to-asset ratio reached 72.82%, the debt-to-asset ratios of the remaining companies are all below 70%. Chevron, which has the lowest debt ratio, has a debt-to-asset ratio of only 38.84%.
However, judging from the growth of debt ratios of various companies, the asset-liability ratios of most companies have increased slightly, with Western Oil Company, which had the highest increase, increasing by 17.33%, not exceeding 20%. For the asset-heavy oil industry, the debt ratios of these companies are still within the normal range. Only Chesapeake Energy, Rosneft and ConocoPhillips have seen a decline in their debt ratios.
It can be seen that the oil industry currently has limited ability to use capital. Although the financial risks of these companies are not high, the efficiency of these oil companies in using external funds is not high enough.
The profits of these internationally renowned oil companies almost all declined in 2019, and a very important reason is the low net profit margin. Among the 13 companies, ConocoPhillips, which has the highest net profit margin, has a net profit margin of only 19.79%, while the net profit margins of most companies are in the single digits, and the net profit margins of three companies, including Occidental Petroleum, Chesapeake Energy and Schlumberger, are even negative.
It is understood that ConocoPhillips International is a comprehensive multinational energy company and one of the largest energy groups in the United States. Its core businesses include oil development and refining, natural gas development and sales, petroleum fine chemical processing and sales and other oil-related industries. ConocoPhillips' high net profit margin is due to its good control of operating costs. In 2019, its operating costs decreased by US$1.93 billion compared with 2018.
Comparing the companies' gross profit margins, we can easily find that most of the oil companies on the list have considerable gross profit margins. Take Occidental Petroleum, which ranks first, for example, with a gross profit margin of 60.73%. Except for Valero Energy, which has a gross profit margin of only 4.41%, the gross profit margins of the other dozen companies are all over 10%. However, high gross profits do not lead to high net profits. Insufficient operating cost control capabilities may be the direct reason for the poor profit levels of these companies.
Take Occidental Petroleum as an example. Its gross profit margin is over 60%, but its net profit margin is -2.46%. Its operating expenses in 2019 were as high as 13.32 billion, an increase of 6.231 billion US dollars from 2018, an increase of nearly 50%. The same is true for BP, whose operating expenses in 2019 increased by 6.09 billion compared with 2018. This has caused BP's net profit margin, which has a gross profit margin of over 10%, to shrink significantly to only 1.48%. Other oil companies have similar situations. Their lack of cost control has directly affected the company's performance growth.
If the decline in net profit is just one of the manifestations of the poor development of international oil companies, then insufficient net cash flow is an important reason for their weak subsequent development. Overall, among the 13 companies on the list, only Western oil companies maintained a single-digit net cash flow. The net cash flow of Fortune 500 companies such as ExxonMobil and BP was only a few million US dollars. Nine companies had negative net cash flow. Rosneft's net cash flow was -9.105 billion US dollars, a year-on-year decline of -218.43. Shell was also in the same boat, with a net cash flow of -8.687 billion US dollars, a year-on-year decline of 235.12%.
Fortunately, the net cash flow of eight companies increased compared with the same period last year. The largest increase was in Chesapeake Energy, which increased by more than 3 times. ExxonMobil also increased significantly, from -135 million US dollars in 2018 to 4 million US dollars this year, an increase of 134.81%.
The internationally renowned oil companies are under great downward pressure on their performance in 2019. Chevron even plans to start layoffs on April 6 this year. Coincidentally, Occidental Petroleum also announced in January this year that it would start layoffs. Melissa Scheib, a spokesperson for Occidental Petroleum, said in an email to Reuters that the company is laying off employees through a voluntary layoff plan, but did not provide specific figures.
Traditional oil companies have to explore new profit models under the downward pressure of the industry, and embracing the new energy industry has become the choice of many oil companies. International Energy Network reporters learned that in 2020, Shell established an independent subsidiary NewEnergies to invest in renewable energy and low-carbon electricity. According to an internal announcement, the new company will merge Shell's existing hydrogen, biofuel and electrical businesses, and is preparing to enter the wind power field.
Total SA, one of the world's four largest petrochemical companies, has made many investments in the field of new energy. Although the planned expenditure has been repeatedly cut due to the impact of low oil prices, Total still plans to invest $500 million annually in the field of new energy, and plans to increase its new energy market share to 15%~20% by 2035.
BP has been in the field of new energy for a long time. In 2005, BP established a new energy business department and planned to invest $8 billion in wind energy, solar energy and biofuels within ten years, and completed the investment target ahead of schedule at the end of 2013. BP plans to expand its wind power business in the United States by the end of 2020. Although the company already operates 14 wind farms in seven states in the United States, this does not affect its enthusiasm for continuing to enter the wind power industry.
Large international oil companies have entered the field of new energy. With both capital and strength, these companies may drive the overall development speed of the new energy industry. At the same time, with the sluggish oil and gas industry, it was again affected by the global pneumonia epidemic in early 2020. International oil prices continued to fall, and the financial report data of major oil companies in the first quarter of 2020 may hit a new low.
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