IOCs, local firms lose 50% revenue to low oil prices

Weighed down by lower crude oil prices and asset impairments, International Oil Companies (IOCs) and some indigenous firms have suffered almost 50 per cent loss in revenue between the last quarter of 2015 and the first quarter of 2016.

Companies like Exxon Mobil Corporation, Chevron Corporation, Oando Energy Resources and Seplat Petroleum Development Company Plc, have had their earnings reduced to nearly 50 per cent as the crude oil price has declined.

On the New York Mercantile Exchange yesterday, light, sweet crude futures for delivery in June traded at $45.60 a barrel, representing a seven per cent loss in the global electronic session. June Brent crude oil on London’s ICE Futures exchange fell by 1.1 per cent to $46.84 a barrel.

Crude oil prices have fallen about 55 per cent since the middle of last year, resulting in some of the world’s largest energy companies losing hundreds of billions of dollars in market value.

The price of crude oil has been relatively flat over the past two days, but it still sits below $50 per barrel, the lowest point in about five years.

Exxon Mobil Corporation’s earnings from first quarter of 2016 declined from $4.9 billion it recorded in the same period of 2015 to $1.8 billion.

The sharp decline came amid a loss from its business producing oil and natural gas, one that largely came from flagging operations in U.S. shale basins. Profits from refining oil into products such as gasoline and diesel, also fell by almost half.

Chairman and Chief Executive Officer of Exxon Mobil, Rex W. Tillerson, said that the organisation continued to respond effectively to challenging industry conditions, capturing enhancements to operational performance and creating margin uplift despite low prices.

He added that the scale and integrated nature of the company’s cash flow provided competitive advantage and consistent strategy execution.

Also, Chevron Corporation, yesterday reported a loss of $725 million for first quarter of 2016, compared with earnings of $2.6 billion in the 2015 first quarter.

The company’s foreign currency effects also decreased earnings in the 2016 quarter by $319 million, compared with an increase of $580 million a year earlier.

Sales and other operating revenues from the company in the first quarter of 2016 were down to $23 billion, compared to $32 billion a year ago.

The company’s Chairman and Chief Executive Officer, John Watson, stated: “First-quarter results declined from a year ago. Our upstream business was impacted by a more than 35 per cent decline in crude oil prices. Our downstream operations continued to perform well, although overall industry conditions and margins this quarter were weaker than a year ago.”

Chevron’s downstream refining segment fell by nearly 50 per cent to $735 million in the first quarter. Its upstream production and exploration segment posted a loss of $1.46 billion for the quarter, compared with earnings of $1.56 billion a year ago.

Watson said the company remained focused on improving free cash flow, while revenues could get a boost from Chevron’s growing liquefied natural gas segment. Production from Chevron’s LNG project in Angola is likely and a cargo shipment is expected in May, he said.

He said that the company would continue to lower its cost structure with better pricing, work flow efficiencies and matching organisational size to expected future activity levels. “Our capital spending is coming down. We are moving our focus to high-return, shorter-cycle projects and pacing longer-cycle investments,” he said.

“Seplat Petroleum Development Company Plc, a leading Nigerian independent oil and gas company’s crude revenue after lifting adjustments was down by 53 per cent at $56 million, lower than the same period in 2015”, he added.

The company’s gross profit stood at $30 million and net loss after tax $19 million, reflecting the lower realised oil price and shut-in of the Forcados terminal. Capital investments incurred during the first three months totalled $9 million against cash generated from operations of $64 million

Seplat’s Chief Executive Officer, Austin Avuru, said that the company’s first quarter results reflected the impact of the shut-in and suspension of oil exports at the Forcados terminal from mid-February onwards.

“However, we are in the final stages of establishing a temporary export solution via the Warri refinery jetty with our off-taker Mercuria to resume oil production, albeit at reduced levels, which will enable us to de-constrain gas sales into the domestic market back to normalised levels. Longer term it remains an absolute priority of ours to secure reliable alternative export options and achieve greater diversification through development of the wider portfolio. Despite these challenging circumstances, I am pleased to report that we continued to supply an average gross rate of 224 MMscfd sales gas into the domestic market and that the business remains on a sound financial footing with strong fundamentals that together provide resilience to such setbacks,” he added.

Oando Energy Resources’ revenues in the fourth quarter of 2015 decreased from $174 million it recorded in the same quarter of 2014 to $99.8 million to the last quarter of 2015.

The company attributed the decrease to the significant reduction in crude oil and natural gas prices, which partially offset additional revenue from Qua Ibo coming on-stream in the first quarter of 2015.

It stated: “Revenue from sales during the fourth quarter of 2015 consisted of $83.4 million of crude oil, $18.6 million of natural gas, $3.0 million of NGLs, $4.2 million related to the sale of power generated by the Kwale-Okpai independent power plant (IPP), and $0.7 million related to oil transportation tariffs. In the fourth quarter of 2015, royalties on oil and gas sales were $10.1 million, compared with $37.5 million in the same quarter of 2014. The decrease in royalties was a result of the reduction in sales from lower commodity prices and an adjustment reducing prior year government royalties at OML 56.”