Last year was unique among down cycles experienced by the oil and gas industry, as reflected by considerable drops in oil demand, revenues, capital expenditures (capex) and reserves, according to the EY US oil and gas reserves, production and ESG benchmarking study. The study documents the historic fallout during 2020 with analysis of reserve and production information from the industry’s 50 largest publicly traded exploration and production companies — based on year-end 2020 US oil and gas reserves — as well as their environmental, social and governance (ESG) disclosures.
Companies in the study posted the lowest revenues since 2016 at US$110.8 billion, as the effect of cratered global demand, prices, and increasing investor pressure all weighed on financial performance. Impairment charges amounted to US$66.6 billion, the highest for the five-year study period by more than 300% due to the significant decline in oil prices. After-tax losses were US$84.1 billion — the first loss since 2016.
“2020 has the potential to be a profoundly transformative year for energy,” said Mitch Fane, EY Americas Energy & Resources Leader and EY US Oil & Gas Leader. “As the market recovers from the pandemic and the financial positions of companies improve, the future of the industry will be determined. One thing is certain: there’s no stopping the energy transition. The oil and gas companies that remain today are confronting the immense challenge of how to access capital, reinvest and reshape their businesses.”
Capital expenditures, production and reserves
According to the study, capex totaled US$60.3 billion, 60% lower than 2019, the lowest for the study period, with decreased investment in all categories: proved properties acquired, unproved properties acquired, exploration, development and other. The companies studied drilled 41% and 32% fewer development and exploration wells, respectively, compared with 2019.
“The lower commodity price environment of last year caused a significant drop in capex and significant impairments,” said Herb Listen, EY Americas Energy & Resources Assurance Leader. “Though prices have recovered, we haven’t seen a rebound in capex in 2021 and, as a result, likely won’t see a return in US production to the same pre-pandemic levels. This will cause a ripple effect as the market struggles to meet recovering demand and may result in higher prices.”
Oil production was 2.8 billion barrels and gas production was 13.2 trillion cubic feet (tcf), only a 2% decrease from 2019, which saw the highest oil and gas production during the study period. The companies reported combined oil reserves of 26 billion barrels and combined gas reserves of 148 tcf, decreases of 19% and 13%, respectively, compared with 2019 primarily driven by downward revisions of 5.1 billion barrels and 19.4 tcf due to lower commodity pricing and decreased forecasted capital investment commitments.