MOSCOW (MRC) -- Low commodity prices and deep spending cuts in the first half of 2020 could lead US supermajors ExxonMobil and Chevron to write down huge chunks of their proved oil and natural gas reserves if prices remain depressed in the second half, reported S&P Global with reference to recent SEC filings.
In a 10-Q filing, ExxonMobil said Aug. 5 it could write down as much as 20% of its proved reserves, which totaled 22.4 billion barrels of oil equivalent at year-end 2019, thus implying a nearly 4.5 billion boe write-down.
If low prices persist for the rest of the year, "certain quantities of crude oil, bitumen, and natural gas will not qualify as proved reserves at year-end 2020," ExxonMobil said.
Separately, Chevron said in an Aug. 5 filing that it may revise downward its proved reserves by about 10%, mostly in the US Permian Basin and Australia.
"Should the current low commodity prices persist, it is expected that proved reserve quantities would decrease for oil and gas properties where economic limits are negatively impacted. Lower prices will positively impact proved reserves due to entitlement effects," Chevron said in the 10-Q filing.
The impacts of the COVID-19 pandemic on the economy and the unprecedented oil market crash prompted a wave of spending cuts but also hefty write-downs by most of the integrated oil and gas majors in the last several months, as they all shifted their longer-term crude price outlooks lower.
Chevron took a USD5.4 billion upstream charge in the second quarter, primarily related to a non-operating field in the Gulf of Mexico, conventional operations in the Permian, and various producing assets in Asia and Africa. The charge also included a USD2.6 billion impairment on assets in Venezuela, sparked by the uncertain operating environment and outlook in the South American country.
London-based BP booked a second-quarter post-tax write-down of USD10.9 billion for non-operating items and a post-tax impairment of USD6.5 billion on upstream exploration activities. Shell reported a post-tax charge of $16.8 billion in the second quarter.
Prior to the recent filing, ExxonMobil had not offered guidance regarding possible write-downs, after unveiling in April that it would trim this year's capital expenditures by 30%, from USD33 billion to USD23 billion, and slash its operating budget by 15%. As a result of the capex spending cuts, ExxonMobil also disclosed in the Aug. 5 filing it would cut its estimates of proved reserves by 1 billion boe for the year, most of it from US shale.
"Consequently, unit-of-production depreciation and depletion rates for upstream assets increased beginning in the first quarter," ExxonMobil said in the filing.
ExxonMobil will make deeper cuts to its operations and spending in 2021, the company said on its second quarter earnings call.
"Looking ahead to 2021, we see significant potential for additional reductions based on the identification of further long-term structural efficiencies, reduced activity levels, and an evaluation of our workforce requirements, including the potential for further reductions in overhead and management positions," ExxonMobil Senior Vice President Neil Chapman said July 31.
ExxonMobil's additional spending cuts as well as a review of the value of assets should be finalized with the company's board of directors in November and should be released in the first half of 2021.
As MRC informed previously, Chevron Phillips Chemical, part of Chevron Corporation, declared force majeure Sept. 1 on its polyethylene (PE) products after assessing the impact of Hurricane Laura to its Gulf Coast PE operations,
ExxonMobil is the largest non-government owned company in the energy industry and produces about 3% of the world's oil and about 2% of the world's energy.
According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports.
Headquartered in San Ramon, California, Chevron Corporation is the the second-largest integrated energy company in the United States and among the largest corporations in the world. Chevron is involved in upstream activities including exploration and production, downstream activities including refining, marketing and transportation, and advanced energy technology. Chevron is also invested in power generation and gasification processes.