how global majors passed through 2020, and themes for 2021

How global majors passed through 2020, and themes for 2021 and beyond

April 2021

1

Resume

In 2020 global oil & gas majors:

• experienced deterioration of key financial metrics and rating downgrades;

• made significant opex and capex cuts, some slashed dividends;

• sharply increased leverage.

Current challenges include:

• adapting to the global ESG transition;

• upstream underinvestment of Western majors leaves them unprepared for a commodity super-cycle;

• significant balance sheet stresses and adjustments encourage M&A activity.

How global majors passed through 2020

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2020 results

Source: Bloomberg, company data

CompanyShare price

Capex Net debtNet debt/

EBITDADividends

Upstream capex share

Chevron -30% -37% +54% 0.8 2.7 +6% 81%

ExxonMobil -40% -31% +38% 1.5 4.0 0% 67%

Shell -44% -28% -3% 1.5 2.8 -66% 41%

Total -28% -9% +48% 0.9 2.4 +3% 44%

BP -44% -20% -8% 1.6 5.7 -37% 76%

Saudi Aramco -1% -18% n/m -0.1 0.7 0% 76%

PetroChina -39% -16%* -6%* 0.9 1.5* -9%** 78%

Gazprom -32% -18%* +18%* 1.5 3.1* -52%** 46%

* results of 9M20** Bloomberg consensus

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2020 results

Source: Bloomberg, company data, Gazprombank estimates

CompanyShare price

Capex Net debtNet debt/

EBITDADividends

Upstream capex share

Chevron -30% -37% +54% 0.8 2.7 +6% 81%

ExxonMobil -40% -31% +38% 1.5 4.0 0% 67%

Shell -44% -28% -3% 1.5 2.8 -66% 41%

Total -28% -9% +48% 0.9 2.4 +3% 44%

BP -44% -20% -8% 1.6 5.7 -37% 76%

Saudi Aramco -1% -18% n/m -0.1 0.7 0% 76%

PetroChina -39% -16%* -6%* 0.9 1.5* -9%*** 78%

Gazprom -32% -25%** +29%** 1.5 3.1** -38%** 46%

* results of 9M20** estimates for FY20*** Bloomberg consensus

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Credit rating downgrades

Source: Bloomberg, company data

Company S&P/ Moody’s / Fitch

2019 2020 2021

Chevron AA/Aa2/- AA/Aa2/- AA-/Aa2/-

ExxonMobil AA+/Aaa/- AA/Aa1/- AA-/Aa2/-

Shell AA-/Aa2/AA- AA-/Aa2/AA- A+/Aa2/AA-

Total A+/Aa3/AA- A+/Aa3/AA- A/A1/AA-

BP A-/A1/A A-/A1/A A-/A2/A

Saudi Aramco -/A1/A+ -/A1/A -/A1/A

PetroChina -/-/A+ -/-/A+ -/-/A+

Gazprom BBB-/Baa2/BBB BBB-/Baa2/BBB BBB-/Baa2/BBB

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US: ExxonMobil and Chevron

Source: Bloomberg

SHARE PRICE VS. BRENT

• Exposed to the US shale industry, where output fell sharply in 2020 due to economic factors.

• Cut capex by more than 30% in response to the market downturn.

• Did not reduce their dividend payments.

• Lagged behind European peers in adopting long-term targets for GHG emissions.

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JANUARY-20 FEBRUARY-20 MARCH-20 APRIL-20 MAY-20 JUNE-20 JULY-20 AUGUST-20 SEPTEMBER-20 OCTOBER-20 NOVEMBER-20 DECEMBER-20

EXXONMOBIL CHEVRON BRENT

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EU: Total, Shell and BP


• European majors invest relatively less in upstream.

• They were the first to adopt net-zero emission targets by 2050.

• Shell and BP slashed dividends by 66% and 37%, respectively, while Total kept dividends unchanged.

• Net debt at Shell and BP remained unchanged.

Source: Bloomberg

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TOTAL SHELL BP BRENT

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EM: Saudi Aramco and PetroChina

• National oil producers in emerging markets continue to invest actively in upstream.

• Saudi Aramco has free float of 1.5%, among the lowest globally. This helped its share price performance.

• Saudi Aramco’s earnings slumped 44%, but the company maintained stable quarterly dividend payments.

• PetroChina paid a dividend while reporting negative free cash flow.

Source: Bloomberg

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SAUDI ARAMCO PETROCHINA BRENT


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Performance in 2021

Source: Bloomberg, company dataBased on Bloomberg information and market quotes as of March 30* current oil price vs. consensus forecast for 4Q21

SHARE PRICE YTD

TARGET PRICE UPSIDE

2021 DIVIDEND YIELD

RESERVES LIFE, YEARS

25%

38%

14%12%

21%

0%

20%

5%

24%

CHEVRON EXXONMOBIL SHELL TOTAL BP SAUDI

ARAMCO

PETROCHINA GAZPROM BRENT OIL

12%9%

32%

15%

22%

-4%

36%33%

-5%


ARAMCO

PETROCHINA GAZPROM BRENT*

4.9%

6.1%

3.5%

6.6%

5.1%

4.1%

5.9%

10.3%


ARAMCO

PETROCHINA GAZPROM

10 118

14 14

35

4447


ARAMCO

PETROCHINA GAZPROM

Themes for 2021 and beyond

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Oil majors devise long-term plans to improve ESG metrics

• The Paris Agreement and numerous investor groups call on the sector to address climate change concerns.

• Large pension funds have announced that they will only hold stocks in those energy companies which invest in renewable technologies.

• Energy transition is gaining traction.

• European majors such as BP, Shell, Total and Equinor have committed to net-zero emissions by 2050.

• US oil and gas companies lag behind European peers.

• ExxonMobil adopted long-term targets for GHG emissions in December 2020, becoming the last US major to bow to shareholder pressure.

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Clean energy without fossil fuels? Not so soon

• Only renewable sources allow to produce clean pollution-free energy.

• In the EU, the share of renewables in energy consumption increased continuously between 2004 and 2019, from 10% to 20%.

• The Europe 2030 target for renewables is 32%, which still leaves ample room for oil and gas supplies.

• Interest in hydrogen is rising. Europe is lobbying to invest carbon emission fees into hydrogen.

• However, hydrogen’s advantage over LNG/natural gas is not obvious.

• Massive investment in new economy infrastructure requires uninterrupted oil and gas supplies.

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Lower capex leaves the market exposed to supply deficit

• Global majors have optimized upstream portfolios to turn in faster cash generation. This has been accomplished at the expense of exploration.

• In the medium term, the upstream will remain a core segment for majors and require more capex.

• BP announced no exploration in new countries and a 40% reduction of hydrocarbon output by 2030.

• Capex in green energy will take a significant share of investment programs.

• Europe’s dependence on external gas supplies is a risk. Recent example: S. Arabia cancelling LNG plans.

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Expecting active M&A and restructuring period ahead

• Following the pandemic and low oil prices in 2Q20, oil majors began to actively reduce cash costs and improve operational efficiencies. In this regard, ExxonMobil and Chevron even discussed a merger.

• Transformation to lower-carbon business models will also drive interest in M&A.

• Majors may find opportunities to invest in green energy and simultaneously sell assets with low profitability and high GHS emissions.

• Oil companies that were on the verge of bankruptcy due to low energy prices in 2020 are now completing restructuring. Chesapeake emerged from Chapter 11 with $1.3 bln in debt vs. $9.1 bln as of mid-2020.

• New business models are emerging.

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How this commodity super-cycle is different

• Some analysts argue that a new commodity super-cycle has begun.

• Post-pandemic recovery, massive stimulus spending, rising inflation, Chinese economic growth and a deteriorating US dollar are seen as drivers for a bull market in commodities.

• Prices of silver, copper, platinum and other commodities are at their highest levels in years.

• Oil prices have also recovered from multi-year lows.

• Current underinvestment in upstream may significantly limit future supplies.

• Unprecedented monetary easing smooths the cycle.

• Explosive growth of the new economy requires heavy investments.

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Drivers of value in O&G

• DM majors: saving on upstream investments will enhance financial performance.

• EM producers: can gain market share in the long term, as drilling is profitable at current oil prices.

• Majors again can select value-enhancing capital allocations among dividends, capex and debt repayment.

• Europe’s gas storage levels dropped to 30% of capacity and must be topped up.

• ESG and de-carbonization strategies.

• Developing new economy infrastructure will drive energy demand.

• Investors are shifting attention to hydrogen as a cleaner fuel alternative.

• Expected rise in electricity demand will support power generation businesses.

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how global majors passed through 2020, and themes for 2021

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