The pandemic has triggered the largest revision to the value of the oil industry’s assets in at least a decade, as companies sour on costly projects amid the prospect of low prices for years.
Oil-and-gas companies in North America and Europe wrote down roughly $145 billion combined in the first three quarters of 2020, the most for that nine-month period since at least 2010, according to a Wall Street Journal analysis. That total significantly surpassed write-downs taken over the same periods in 2015 and 2016, during the last oil bust, and is equivalent to roughly 10% of the companies’ collective market value.
Companies across the major Western economies are writing down more of their assets during the coronavirus pandemic than they have in years. But the oil industry has written down more than any other major segment of the economy, following an unprecedented collapse in global energy demand, according to an analysis of data from S&P Global Market Intelligence.
Oil producers frequently write down assets when commodity prices crash, as cash flows from oil-and-gas properties diminish. This year’s industrywide reappraisal is among its starkest ever because oil companies also face longer-term uncertainty over future demand for their main products amid the rise of electric cars, the proliferation of renewable energy and growing concern about the lasting impact of climate change.
European major oil companies Royal Dutch Shell RDS.A -0.31% PLC, BP BP -0.71% PLC and Total SE were among the most aggressive cutters, accounting for more than one third of the industry’s write-downs this year. U.S. shale producers including Concho Resources Inc. and Occidental Petroleum Corp. booked more impairments than they had in the past four years combined. The data, which encompassed the first three quarters of 2020, excluded Exxon Mobil Corp.’s recently announced plan to write down up to $20 billion in the fourth quarter and the $10 billion Chevron Corp. slashed in late 2019.
The Journal’s analysis reviewed data from S&P Global Market Intelligence, Evaluate Energy Ltd. and IHS Markit on impairments taken by major oil companies and independent oil producers with a market value of more than $1 billion based in the U.S., Canada and Europe.
Regina Mayor, who leads KPMG’s energy practice, said the write-downs represent not only the diminished short-term value of the assets but many companies’ belief that oil prices may never fully recover.
“They are coming to grips with the fact that demand for the product will decline, and the write-downs are a harbinger of that,” Ms. Mayor said.