August 12, 2020 Read More →

Coronavirus pandemic exposes longstanding troubles of oil and gas business


The coronavirus pandemic has exposed some hard truths to the world’s largest oil and gas majors, energy analysts have told CNBC, with many reeling after historic second-quarter losses laid bare the financial frailty of the industry.

“Big Oil” companies, referring to the world’s largest oil and gas firms, posted huge losses in the three-month period through to June as coronavirus lockdown measures coincided with an unprecedented demand shock.

The results were expected to mark the low point of what has already been touted as potentially the worst year in the history of global oil markets. 

“I like to look at the financials, and the picture has been bleak for this industry for a decade,” Kathy Hipple, an analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told CNBC via telephone.

The beleaguered energy sector has fallen 36% year-to-date, making it the worst-performing sector on the S&P 500.

The sector has consistently disappointed investors since 2010, Hipple said, with oil and gas companies clearly finding it “increasingly hard” to raise enough cash flow from their operations to cover shareholder distributions.

Energy analysts told CNBC the coronavirus-led demand shock had since “sped up the unraveling of this investment thesis.” 

“The U.S. fracking buildout and the LNG buildout, in particular, was premised on this unlimited demand from Asia for LNG and prices that would give U.S. LNG companies a profit,” Clark Williams-Derry, energy finance analyst at IEEFA, told CNBC via telephone.

Liquefied natural gas was seen to be tipping into oversupply last year, Williams-Derry argued, adding the coronavirus crisis had now flooded the market to a point where the glut had become impossible to ignore.

[Sam Meredith]

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