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Shell’s profits laid low while other oil majors post steep losses

(Photo: Gallo Images / Jacques Stander)

Royal Dutch Shell reported an 87% plunge in fourth-quarter profits on Thursday, the latest oil major to unveil a massive hit in earnings in the face of the Covid-19 pandemic. This comes in the wake of a string of huge losses by its rivals and a week after Sasol provided the market with a surprisingly upbeat trading statement.

Oil majors took a drubbing in 2020 as demand for their products evaporated.

BP reported its first loss in a decade, while Exxon posted an annual loss of $22.4-billion, the first time its earnings have fallen into the red since it went public. That’s almost 10 times the size of Lesotho’s GDP. Chevron’s loss was $5.5-billion. Small wonder that electric vehicle maker Tesla’s market capitalisation is now bigger than the five largest Western oil majors combined. It is north of $830-billion, which is a heck of a lot of Lesothos.

Now Shell has come out with its results, which actually showed a profit, but was its worst performance in 20 years. Its full-year profits fell by 71% to $4.8-billion while its Q4 earnings were down by 87%.

The tide is turning against oil majors, even as they embrace decarbonisation and attempt to green up their assets. Shell is tilting towards hydrogen and biofuels while its rivals are on a quest for renewable power assets. Meanwhile, tens of billions of dollars worth of hydrocarbon assets have been written off, and many projects have been put on hold. Conservation group WWF sounded a warning this week about drilling in the Kavango Basin in Namibia, but one suspects such initiatives will find it increasingly difficult to find serious investors in such an environment.

Global consultancy PwC forecast in 2020 that oil demand would never again reach 2019 levels, but the price of crude has been rebounding in 2021 and is now above $55 a barrel. That has implications for South Africa’s economy as witnessed by the 80c a litre jump in the retail petrol price this week.

Amid all this carnage, Sasol last week put out a surprisingly upbeat trading statement. It said it expected earnings per share for the first half of its financial year to the end of December 2020 to more than double. Cost-cutting and asset sales have clearly helped the company — which in 2020 was on the ropes — get back on its feet. The petrochemicals giant, which will unveil its results later this month, may now avoid the need to go to shareholders for a rights issue. 

Still, the outlook for 2021 for Sasol and the sector more generally remains murky. A lot will hinge on global economic growth and the worldwide rollout of the vaccine. Oil majors may see an earnings lift in 2021, but they are no longer printing money. BM

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