Performance Inspection Of Global Oil Companies: "Cost Reduction And Efficiency Increase" Promotes Chinese Enterprises To Lead Far Ahead

On the afternoon of March 28, Sinopec (600028. SH) released its 2020 annual report, becoming the last large oil company in the world to release the report.

In 2020, Sinopec's net profit attributable to the shareholders of the parent company was 32.9 billion yuan, down 42.9% year-on-year. However, Sinopec was still the most profitable Petrochemical integrated oil company in the world last year. With a net profit of 19 billion yuan for PetroChina and 24.956 billion yuan for CNOOC, the performance of China's oil companies in 2020 can almost be said to be "small at a glance".

The reason is that under the background of the spread of new pneumonia, the collapse of international oil prices and the transformation of carbon neutral, global oil companies are facing great uncertainty. In contrast, China has become the only major economy in the world to achieve positive growth with a growth rate of 2.3%, which also allows Chinese oil companies to fully enjoy relatively more "certainty".

At the same time of publishing the annual report, Sinopec also announced that in the first quarter of 2021, the net profit attributable to shareholders of the parent company was 16 billion to 18 billion yuan, while the loss in the same period of last year reached 19.782 billion yuan, realizing a "good start".

There is a big gap in performance

For oil giants, 2020 is the "darkest night" in the global oil industry for more than 100 years.

On February 4, 2021, shell announced its full year profit in 2020 of US $4.85 billion, down 87% from US $16.46 billion in 2019, making it the world's second largest multinational oil company to make money after Sinopec. It is worth mentioning that most of shell's net profit is due to the profits from its oil and gas trading business.

Two days before shell released its annual report, ExxonMobil, the largest oil company in the United States, announced that it had a net loss of $22.44 billion in 2020, the first annual loss since its merger in 1999, and its net profit in 2019 was as high as $14.3 billion. In the fourth quarter of 2020 alone, the company recorded a loss of more than $20 billion.

BP, another oil giant, announced its strategy to transform itself into a comprehensive energy company at the beginning of 2020, and restructured its organizational structure substantially to face the new energy era in the future.

However, such reforms will not bring them good luck in 2020. The company recorded a net loss of $20.3 billion for the year, its worst performance since the oil spill in the Gulf of Mexico.

In contrast, PetroChina has achieved a good performance in 2020. In addition to Sinopec as mentioned above, PetroChina's operating revenue was 1.93 trillion yuan, a year-on-year decrease of 23.2%, and domestic oil and gas equivalent output reached 1.409 billion barrels, up 4.8% year-on-year. The net profit attributable to the shareholders of the parent company was 19.01 billion yuan, down 58.4% year on year.

CNOOC achieved an oil and gas sales revenue of 139.6 billion yuan, a year-on-year decrease of 29.2%, and domestic oil and gas equivalent output reached 528 million barrels, an increase of 4.3% year-on-year. The net profit was 24.956 billion yuan, down 59.1% year on year. The company's proven reserves reached a record high of 5.373 billion barrels of oil equivalent.

There is a huge gap between the profits and losses of global oil companies, which is due to different views on upstream assets.

Take BP as an example. In the second quarter of last year, BP significantly wrote down the value of its assets, ranging from $13 billion to $17.5 billion after tax. The write down was due to the company's sharp reduction in its expectation of future oil and gas prices.

After the revision, the average Brent price from 2021 to 2050 is expected to be 55 US dollars / barrel, which is 30% lower than that before the revision of 70 dollars / barrel. According to this expectation, a considerable part of BP's current oil and gas assets will not be developed in the next 30 years.

Remarkable achievements in cost reduction and efficiency increase

An important way for Chinese companies to gain profits is to reduce costs and increase efficiency for several years.

"In the oil price slump cycle, the test is the cost control ability of enterprises, because the exploration and development costs will not follow the sharp drop of oil prices." A person in the oil industry told the 21st century economic report, "especially in China, the geological conditions are complex, the exploration and development are difficult, and the cost has been declining year after year. Under such circumstances, a lot of costs are still reduced, which is really not easy."

Different from the contraction of upstream business of international oil companies, one of the most important tasks for Chinese oil companies is to ensure that domestic oil and gas production is "increased storage and production" to ensure the safety of domestic energy supply. The importance of this task is more prominent after many uncertain events in 2020.

According to the data disclosed at present, PetroChina and CNOOC, the two oil companies with upstream business as the core, have achieved year-on-year growth in production, with oil and gas equivalent production increasing by more than 4%, a new high in recent years. At the same time, the two companies also achieved revenue performance beyond the drop in oil prices, showing the effectiveness of cost control.

Even Sinopec, which does not take exploration and development as its main business, dropped 9.5% last year, the third consecutive year. However, compared with international oil companies, there are still some gaps to be filled, namely oil and gas trading business.

Shell, for example, made a profit of $2.6 billion in its large trading business last year, nearly doubling year-on-year. This also proves that in the context of global oil price fluctuations, trading business can provide oil and gas companies with sufficient cash to survive the cycle.

BP made $2.9 billion in oil and oil trading and $1 billion in gas trading last year. The two companies transport more than 20 million barrels of oil and refined oil a day, much more than their own production.

In the follow-up, this year's oil price trend is facing more uncertainty than last year. Both Chinese and international oil companies have not been able to get rid of the crisis completely and still need more efforts to achieve performance improvement.

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