Global Oil And Gas Assets Are Reduced Or US $1 Trillion And 600 Billion. Oil Companies Have Been Tightening For The Winter.

On the evening of June 30th, Beijing, the international oil giant Shell announced a record of asset impairment plan, which will write down 15 billion to 22 billion US dollars in the two quarter of this year.

This is not the first company to make asset writedowns this year, nor will it be the last one. "This process will continue, and we expect further massive write downs in the industry," he said. Angus Rodger, head of research at Wood Mackenzie, said: "after the outbreak of the new crown pneumonia outbreak, the global oil and gas upstream valuation has shrunk by 1 trillion and 600 billion US dollars."

As of press release, the top ten largest oil and gas companies in the past year accounted for 5 of the assets writedowns, including BP, Shell, Beck, Hughes, Chevron and Occidental Petroleum.

"The asset write down by these oil companies is not only an accounting problem but also a fundamental change in the global oil and gas industry," he said. A person from the domestic oil industry told the twenty-first Century economic news reporter, "through these writedowns, Shell's oil companies have conveyed to us information about shelving assets."

He said that a significant part of their statements, whether Shell or BP, is a sharp reduction in the price expectations of the future, which means that in the upstream assets of the two companies, a significant portion of the future value may be "zero".

Expected changes in oil prices

Four years ago, oil companies had just recovered from the previous oil price collapse, and Shell even paid $53 billion to buy BG. At that time, no one would talk about the peak oil demand, upstream asset stranding and liquidation of business models, all of which thought that oil companies would be very flexible in coping with the transformation of climate change.

But this year, the new crown pneumonia epidemic sweeping the globe changed everything.

"At least from now on, people's lifestyles and globalized economic models have been profoundly changed." The oil industry told reporters that "oil demand may take two to three years to restore to 2019 levels."

Whether in Europe, the Americas or Asia, a world in which the economy is postponed, let everyone see the clear sky and white clouds, and reduce the consumption of fossil energy, so that people can feel the improvement of the environment. As a result, all countries are looking for more green and clean energy solutions in the course of future economic reconstruction.

All changes suggest that the peak of oil demand is likely to come sooner than anyone had expected. At the same time, technological progress has profoundly changed the oil industry in recent years. Now few people will think that oil will be depleted in a short time, and more and cheaper oil and natural gas will be found worldwide.

Therefore, these international oil companies have no reason to insist on previous expectations of oil prices.

In its statement, Shell estimated that the average price of Brent crude oil was $35 / barrel in 2020, rising to $40 / barrel in 2021, and rising to $50 / barrel in 2022, which is lower than the assumption of 60 US dollars / barrel in 2019. At the same time, it also lowered its long-term profit margin forecast by about 30%.

BP is more radical. The average price of Brent crude oil in the next thirty years will be adjusted to $55 / barrel. The price of natural gas is expected to be adjusted to $2.90 / Mega thermal unit, which is 27% and 31% lower than previous expectations.

However, compared to BP, Shell bought BG with us $53 billion in 2015, putting the bets of future energy transformation on LNG. This not only puts it in debt, but in the current energy outlook, LNG may not support Shell's transformation vision.

"We remain firmly convinced that this is a fundamentally strong industry." Shell CEO van Borden said earlier, "this is the fastest growing area in the field of hydrocarbons. We will adjust our investment plan according to the direction of the development of the industry, but the industry's profitability and prospects will be as good as before the outbreak."

Ultimately, as he said, it may take time to verify.

Oil companies spend the winter

Compared with foreign counterparts, the environment faced by China Petroleum Corp is more complicated: it should make profits, contribute taxes to the state, realize the preservation and appreciation of state-owned capital, and protect employment in this special period, highlighting the social responsibilities of the central enterprises.

Compared with the previous oil price slump, China Petroleum Corp faces a more difficult situation in this round.

The national energy board said recently that China's crude oil producers should set the output of crude oil in 2020 to 1.93 billion tons (38 billion 600 million barrels), which is 1.6% higher than the actual output in 2019. Domestic oil and gas production is dominated by PetroChina and CNOOC, which requires that the two companies must increase their output and complete their tasks.

However, because oil and gas production has natural "decline rate" and at present the cost control has been relatively perfect, if we want to promote oil and gas production, we must increase investment. However, under the current oil price level, a considerable part of the domestic oil and gas fields are below the cost line, and it is extremely difficult to balance production and benefit development.

The demand for oil and gas production increased in 2018. At that time, the Chinese government issued the requirement of "seven years of increasing production and production plan". Subsequently, two companies of CNPC and CNOOC held relevant meetings respectively to respond to this policy.

By the end of 2019, Zhang Jianhua, director of the State Energy Bureau, revealed that the upstream exploration and development investment was 332 billion 100 million yuan, an increase of 21.9% over the same period last year. Under the impetus of this investment, China's oil production reversed the three consecutive year's decline, but it grew by less than 1% compared with the same period last year.

Although the oil and gas resources brought by these 21.9% investment growth may not be realized in 2019, this data also shows that the impact of investment on oil and gas production is often half done.

At the end of April, PetroChina announced that its capital expenditure in 2020 would be reduced by nearly 1/3 to 200 billion yuan compared with the previous period, while CNOOC cut its capital expenditure by 10 billion. Because upstream is the main business of these two companies, capital expenditure cuts will directly affect oil and gas production.

Judging from the information currently available, the Chinese oil companies seem to choose the latter between earnings and protection of energy. In May, China produced 16 million 460 thousand tons of crude oil, an increase of 1.3% over the same period last year, a 0.4 percentage point increase from last month, 15 billion 900 million cubic meters of natural gas production, an increase of 12.7% over the same period last year.

However, with the gradual decline of capital expenditure in the future, it is doubtful whether oil production growth can be maintained if oil prices recover slowly. At the same time, in the second quarter of this year, China's oil production enterprises may produce a rather poor performance answer sheet.