Published on Tuesday, May 12 2020
Authors : Sam Davis and John Auers

The COVID-19 pandemic has had a profound impact not only on our everyday lives but also on the companies we work for. Across the industry, companies have had to make dramatic changes in the way they operate. Employees who could were encouraged to work from home while additional cleaning, personal protective equipment and distancing protocols were put in place at manufacturing facilities.  Emergency response teams had to be created and business continuity plans had to be implemented. Companies have also stepped up their community support by increasing production of isopropyl alcohol, a key ingredient in sanitizer, and specialty polypropylene used in medical masks and hospital gowns. Many have also made donations to schools, supported local food banks and provided fuel, meals and masks for healthcare workers and first responders.

On the business side of the equation, the U.S. refining industry has experienced unprecedented product demand destruction amounting to over 30% in total and much greater levels for gasoline and jet fuel.  The upstream side of the business was hit by not only the demand collapse, but also a price and production war between Saudi Arabia and Russia.  The Saudi’s and Russians ultimately had to call an end to the war due to the demand decline, and the OPEC+ group announced historic cuts of almost 10 MMBPD of crude production in an attempt to stabilize oil markets. While this move was considered a step in the right direction toward market rebalancing, it was not sufficient to offset the loss in demand, leading to growing global inventories, lower (and even negative) crude prices, and the increasing number of production shut-ins we have seen over the past several weeks. These were some of the topics discussed during a memorable Q1 2020 earnings season that will certainly go down in the history books.

In the first of a series of blogs, we share a few key takeaways from these calls for the Integrated Majors, a group which had to make painful decisions regarding dividend cuts, capital expenditures and take other steps to set themselves up to survive these trying times. In subsequent blogs over the next few weeks, we will review the earnings calls for the U.S. Independent Refiners, Canadian Integrated Refiners and U.S. Midstream Operators.


Exxon reiterated on the earnings call that despite the significant challenges that COVID-19 has had on the company, the long-term fundamentals driving their business have not changed. While the company announced a 15% reduction in cash opex and 30% reduction in capex for 2020 and is deferring less critical spending and prioritizing quick payout projects, Exxon is proceeding with plans to grow its production in Guyana. Having announced it had begun oil production from the prolific Liza field in offshore Guyana earlier this year, the company expects ramping up production to reach full capacity during the second quarter. According to Exxon, with Phase 1 largely unaffected by the pandemic, it expects to keep phase 2 on track for completion in 2022. Exxon also announced slowing down the pace of downstream projects which could delay the completion of projects we are tracking such as the crude expansion project at its Beaumont refinery and the hydrotreater project at Fawley. .


Chevron announced a lowering of their full year 2020 capex guidance to $14B from $16B they had previously announced in March. The company is also reducing 2020 operating costs by $1B from 2019 levels as a result of lower activity levels, fuel costs and curtailment of other discretionary expenditures. Beyond this year, Chevron is also progressing on another $1B in opex reductions next year from its company-wide restructuring efforts outlined in March. It expects a streamlined organization to be in place by the end of 2020. During last quarter’s earnings call, Chevron was asked what the company was doing to invest in lowering its carbon footprint. CEO, Mike Wirth talked about metrics announced last year tied to methane emissions and flaring that were driving changes already in what the company was doing and additional metrics to be included in compensation related to carbon intensity of oil and gas production. During this call, Wirth reiterated the company’s commitment to these priorities even during this market downturn.


The conference call featured BP’s new CEO Bernard Looney who took over from Bob Dudley in February. In the first few weeks since taking over the CEO role, Looney launched a commitment to reinvent the company, one based on a new purpose to reimagine energy and an ambition to be net zero emissions by 2050. Much of his first earnings call was focused on this top priority while also outlining short-term plans to weather the crisis. Similar to its peers, BP announced capex reduction plans with 2020 guidance now coming in around $12B, a decrease of about 25%. While the company plans to defer capex spending in manufacturing and slowdown the pace of retail site growth, investments in low carbon activities remain unchanged with $500MM expected to be spent in 2020 on these activities. As part of the ‘Reinvent BP’ effort, the company also plans to reduce operating costs by $2.5B by the end of 2021 from a 2019 base by removing duplication inherent in their current segment models, creating a single global supply chain organization, and leveraging its investments in digital via automation and centralization.


Shell made headlines on the earnings call by being the first oil major to announce a reduction in its dividend payments, the first cut in more than 70 years for the company. This news of a two-thirds reduction in its dividend payment dominated the call with analysts as Shell’s CEO Ben van Beurden defended the board’s decision to “provide right balance of maintaining a strong balance sheet, protecting the value of our business and the level of shareholder returns that we offer.” Unlike its peers who offered optimism of a rebound in economic activity, the Shell earnings call painted a less optimistic view of oil price recovery and demand for oil products returning in the short to medium term. This view, it appears, was largely responsible for the company’s decision to conserve cash and weather a storm it views will last longer than what others are expecting. In supporting its position on the risks of a prolonged period of economic uncertainty, Shell announced a reduction in 2020 capex guidance to $20B (or lower) from a previous $25B level. The company is also reducing operating costs over the next year by $3B from 2019 level through deferral of final investment decisions and exiting from early stage projects. Even with these cost reductions, Shell is continuing to invest in low carbon businesses as they also aim to achieve net zero emissions targets by 2050.


Total expressed an optimistic view of demand recovery in the short term with the company expecting their refinery utilization rates to gradually increase to an average of 70-75% from the current 60% average rates. While refining margins have been hit hard, Total reported better than expected performance in their petrochemicals segment where they have seen demand more resilient, particularly for plastics use in food and medical applications. The company also touted its flexible crackers that have benefited from both lower cost naphtha and ethane. Similar to its peers, Total announced significant cuts to both capex and opex guidance for 2020 but has maintained their investments in low carbon electricity businesses in which it expects to spend between $1.5B to $2B.

Our Take on the earning calls

The Q1 2020 earnings calls highlighted the depths to which oil majors are going to respond to the COVID-19 pandemic and its impact on oil demand while also reacting to an oil market shock that resulted in a commodity price collapse. A few prevailing themes emerged from the calls. The first was a focus on the safety of employees and operations. Companies were going to great lengths to ensure office-based employees worked from home and those at facilities or in the fields had multilayer screening, distancing, hygiene and PPE protocols in place. The industry has always placed a high priority on personnel safety so this came as no surprise that these measures were implemented quickly. Another theme was the oil majors exercising the flexibility in their capital program, with the lowering of full year guidance on capex and opex spend. With the declines seen in oil demand along with major cuts to crude production, companies moved quickly to reduce spending and conserve cash and more reductions could come especially if the recovery is slower than anticipated. Lastly, with the uncertainty of market conditions, oil majors moved to shore up their balance sheets by suspending share buy backs, accessing credit facilities, and issuing debt to ensure enough liquidity to weather the market downturn. So far, all have maintained steadfast support of continued dividend payments to shareholders but it remains to be seen if any others will follow Shell in reducing these payments in the future.

While these companies have all made these declarations, execution will be the key to how each of them survive this downturn and position themselves when economic activity returns. The industry has weathered the ups and downs of many price cycles; however, this is one none of us have experienced and executive level leadership and execution during these tough times will determine how well oil majors are going to perform down the road. As companies focus on capex and opex reductions through the rest of this year, we expect that fundamental tents of the industry – operations excellence, capital and cost discipline, and low cost of supply – will continue to drive performance and results coming out of the downturn.

Finally, it is not lost on us that the pandemic was a grim reminder of the unpredictability of our everyday lives and how things can change almost overnight. Who could have imagined that one day most of us would be working from home, that earnings calls would be held virtually and that social distancing would enter our lexicon and become a way of life? More importantly, it makes us ask the many questions: When will things go back to the way they were pre-pandemic? Will they ever go back?  How will we all adjust once economic activity begins to pick up again? Will we continue to consume petroleum products in the same way and at the same levels as before?  All these and other questions have significant implications for all segments of the petroleum industry.

Turner, Mason & Company will continue to closely monitor developments related to the COVID-19 pandemic, the progress made by states and countries to reopen their economies, crude and refined product supply/demand dynamics, and all other events that could impact the various segments of the oil industry.  We will continue to comment on our changing views on all these issues in upcoming blogs over the next several weeks and incorporating our updated market forecasts into the next edition of our Crude & Refined Products Outlook which will be published to clients in late July.  If you would like more information on this publication or for any specific consulting engagements with which we may be able to assist, please visit our website: and send us a note under ‘Contact’ or give us a call at 214-754-0898.

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