A report has emerged showing that major oil companies have moved to downgrade their assets by $87 billion in just a three-month period.
The report comes from Carbon Tracker who claims a group of seven of the world’s largest oil companies have written down the value of their assets by nearly $90 billion in the span of one financial quarter.
Authors of the report say that a sharp drop in demand amid the coronavirus pandemic is the major reason the oil companies dropped the value of their oil and natural gas assets, as well as the pandemic fast-tracking transition demands from shareholders and public sentiment.
Last week we reported that BP was cutting its oil production by a staggering 40% (around 1 million barrels per day) while investing in new means of renewable energy production, storage and distribution.
In that report, a statement from BP read that it forecasts “demand for fossil fuels to drop by as much as 75% in the next three-decades.” The company forecasts an average of $55 a barrel between 2020 and 2050, while competitor Shell dropped its $60-per-barrel estimate down to just $35 in 2020, jumping to $40 in 2021, $50 in 2022 and $60 from 2023 onward.
“Demand for fossil fuels to drop by as much as 75% in the next three decades.”BP Statement
Upon releasing their quarterly earnings, both BP and Shell reduced their shareholder dividend payments after writing down their assets by $13.7 billion and $22.3 billion respectively.
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Head of the oil, gas and mining division at Carbon Tracker, Andrew Grant has said that oil companies risk ‘stranded assets’ and the collapse of superannuation, pension and investment funds that rely on oil futures.
“COVID-19 has certainly done its bit in wiping out value from oil companies’ books, but it’s clear that it has also accelerated a trend of companies changing their long-term price assumptions to better reflect the realities of the energy transition.”
“The fact that major European players are writing down assets with reference to the Paris agreement is a very positive shift… setting impairment prices in line with conservative estimate of future fossil fuel demand based on the Paris agreement can only help to avoid wasted capital and increase companies’ resilience,” he said in reference to Total and Repsol dropping their asset valuations.
Grant continued to explain that “there are laggards.”
“US oil majors don’t disclose their price assumptions and made little mention of climate change in their quarterly filings. Neither ExxonMobil nor ConocoPhillips have reported any material impairments this year, suggesting management is handing on to an optimistic view of the oil price.”
“Stubbornly sticking to business-as-usual price forecasts may lead companies to misallocate capital to the detriment of their investors,” Grant concluded.