The pandemic has sparked the largest revision of the oil industry’s asset values in at least a decade, as companies spend years souring on expensive projects in the face of low prices.
Oil and gas companies in North America and Europe together wrote off about $ 145 billion in the first three quarters of 2020, the highest for that nine-month period since at least 2010, according to a Wall Street Journal analysis. That total significantly exceeded depreciation taken over the same periods in 2015 and 2016, during the last oil crisis, and corresponds to approximately 10% of the companies’ collective market value.
Companies in the major Western economies are writing off more of their assets during the coronavirus pandemic than in years. But according to an analysis of data from S&P Global Market Intelligence, the oil industry has written more than any other major segment of the economy, following an unprecedented collapse in global energy demand.
Oil producers often write off assets when commodity prices crash, as cash flows from oil and gas properties decline. This year’s revaluation across the industry is one of the strongest ever as oil companies also face longer-term uncertainty about future demand for their key products amid the rise of electric cars, the proliferation of renewable energy and the growing concern about the lasting effects of climate change.
Major European oil companies Royal Dutch Shell PLC, BP PLC and Total SE were among the most aggressive cutters, accounting for more than a third of the sector’s write-offs this year. American shale producers, including Concho Resources Inc. and Occidental Petroleum Corp., recorded more impairment charges than in the past four years combined. The data, covering the first three quarters of 2020, did not include Exxon Mobil Corp’s recently announced plan. to write off up to $ 20 billion in the fourth quarter and that of Chevron Corp. of $ 10 billion at the end of 2019.