Crisis Made Largest U.S. Oil Firms Book Highest Writeoffs Since 2015

Due to the oil and gas price collapse last year, the 50 largest listed exploration and production companies in the United States booked a total of $66.6 billion in impairment charges—more than triple the previous high for 2015-2020 and the highest since 2015, EY said in a new report.

After-tax losses at those 50 companies were $84.1 billion, the greatest loss for the study period and the first loss since 2016, according to EY’s estimates. Revenues also tumbled, by a cumulative 33 percent to $110.8 billion as a result of depressed commodity prices.

Capital expenditures (capex) plunged by 60 percent in 2020 compared to 2019 and stood at just $60.3 billion last year. This was the lowest level for the 2016–20 study period, with significant decreases in all capital spending categories.

The price collapse and the lower demand last year also significantly cut drilling activity at the largest publicly traded U.S. oil firms, EY’s report showed.

U.S. firms drilled 41 percent fewer development wells and 32 percent fewer exploration wells in 2020 compared to 2019.

After the disastrous 2020, in which even giant ExxonMobil booked its first annual loss since the 1999 merger of Exxon and Mobil, and the first annual loss in at least 40 years, profits for U.S. firms have been rather good this year, thanks to the rally in oil prices in the first half.

“Even as prices rise and economics improve, as they have so far in 2021, it is unclear how aggressively companies will be investing in the oilfield,” said

Mitch Fane, Americas Energy & Resources Leader and US Oil & Gas Leader at EY.

U.S. firms have reduced the share of cash flows reinvested in drilling as capital markets now demand returns instead of production growth, according to EY.

As U.S. oil firms are generating record cash flows this year, they have three primary pathways to using the extra cash, EY says. These are boosting returns to shareholders, reinvesting in the core business, or invest in decarbonization and alternative energy, the consultancy noted.

“As the market recovers from the pandemic and the financial positions of companies improve, the future of the industry will be determined. One thing is certain: there's no stopping the energy transition. The oil and gas companies that remain today are confronting the immense challenge of how to access capital, reinvest and reshape their businesses,” EY’s Fane says.  

By Tsvetana Paraskova for Oilprice.com

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