Carbon Tracker: Oil and gas giants take $87bn hit on assets in nine months

Fossil fuel majors have slashed the value of their oil and gas assets by $87bn in recent months as the coronavirus pandemic has decimated demand for oil and accelerated the pace of the clean energy transition, data compiled by Carbon Tracker suggests.

Figures published last week by the influential think tank highlights the impact the slump in oil demand and subsequent crash in prices has had on the fossil fuel industry's price forecast adjustments over the past nine months, but also indicates the trend had started even before the pandemic took hold.

BP, which recently announced plans to slash its oil and gas production by 40 per cent by 2030 in order to pivot towards low-carbon energy solutions, wrote off $13.7bn of assets in the second quarter of 2020 alone, according to data published on Friday in The Guardian.

In June, BP said it expected to write down its assets by $13bn-17.5bn, while Shell and Total also wrote off $22.3bn and $8.3bn respectively in the same period, Carbon Tracker said.

However, Carbon Tracker's analysis also indicates that oil and gas asset downgrades precede the devastation wrought by coronavirus on global oil markets, with six firms making downward revisions in their impairment price in the final quarter of 2019, including Chevron writing down values by much as $13bn.

"While the Covid-19 related demand shock may have been the catalyst for some of recent write-downs we have seen, they are part of a longer trend as companies seek to adjust their portfolios, and remain competitive, in a world of lower long-term prices," Carbon Tracker oil and gas analyst Mike Coffin said in a statement to BusinessGreen. "We would expect to see these trends continue as other companies realise the potential impacts."

Overall, the world's seven largest oil firms have cut the value of their oil and gas assets by $87bn in nine months, according to the data.

Carbon Tracker welcomed oil majors' moves to revise the valuation of their assets in line with projections of lower longer-term oil prices, which it said would help reduce investors' exposure to stranded asset risk.

"The degree to which price forecasts - for use both in planning and in impairment testing - are adjusted is an important step and gives an indication of companies' recognition of the scale of transition risks, and the resulting steps they are taking to reposition their business," Coffin said.

However, Carbon Tracker's figures also reveal that some firms are taking a markedly different approach, with Norway's Equinor and the USA's ExxonMobil and ConocoPhillips failing to report any significant material impairments in the second quarter of 2020.

The companies' decision to disregard the realities of the energy transition and stick to high price assumptions could drive significant risk for investors, Coffin warned.

"Companies who continue in a business-as-usual manner, risk continuing to expose investors to significant stranded asset risk, potentially destroying significant shareholder value," Coffin said.

Carbon Tracker has warned investors for more than a decade that high carbon assets could become stranded as the energy transition picks up pace and oil prices shrink.

Coffin stressed today while price forecast adjustments are an "important step", oil and gas firms' must go significantly further to reduce risk for investors over the years to come.

"We see the key to reducing exposure to potential stranded asset risk is to focus on sanctioning only those lowest cost oil and gas projects that fit within a Paris-aligned world, with higher cost hydrocarbons staying in the ground," he explained.  "Additionally a company reducing its upstream - exploration and production - assets must still consider its potential exposure to falling oil and gas demand in other parts of the business, for example refining."

 

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• Topics
• Risk
• Investment
• Energy
• Carbon Tracker
• oil and gas
• stranded assets
• BP
• Shell
• Total
• Exxon Mobil
• ConocoPhillips
• Equinor