Major-Integrated Oil Companies Caught In the Sell-Off

Michael Teague  |

The brutal sell-off that saw Wall Street in the dumps on Monday took its toll on major oil and gas companies, many of whom were already struggling under the yoke of shockingly disappointing earnings reports released the week previous.

Crude oil futures for March delivery were off by over one percentage point ahead of the closing bell, after the Insititute for Supply Management’s monthly report showed manufacturing activity in the US for the month of January drastically lower than the in month of December, as well as being far short of even the most conservative expectations. Drilling down into the ISM data, Petroleum and Coal Products lead the way for the seven out of 18 manufacturing industries reporting declines from the previous period.

This data was reflected in stock prices for the largest of the “super-major” energy producers. ExxonMobil (XOM) , BP plc (BP) , Royal Dutch Shell ($RDS-B), Total SA (TOT) and Statoil ASA (STO) were all down at least 1.5 percent, while Italy’s Eni SpA (E) and South Africa’s Sasol Ltd. (SSL) were down over 2 percent. Chevron (CVX) was also down a slight 0.2 percent, while major state-run concerns were also having trouble. Chinese heavyweights PetroChina ($PTR) and China Petroleum & Chemical Corp. (SNP) were both off by two-thirds of a percent, while Petrobras Argentina SA (PZE) took a whopping 6 percent loss.

Last week’s round of income statements from Exxon, Shell, and Chevron pointed to an increasingly noticeable, industry-wide trend that suggests that majors have been struggling to replace reserves on a yearly basis (a key metric prized by shareholders). Thus, while independent producers have generally been able to profit from the shale boom in the US, the majors have seen lower profits, lower revenues, and higher capital expenditures resulting from the growing need to take on riskier, more expensive projects, such as the ill-fated Kashagan offshore field in the Caspian sea.

Losses of even 1 or 2 percent may bemuch cause for panis for smaller companies, but for the "super-majors" endowed with enormous market-caps and tied so broadly to so many aspects for the global economy, they represent a sign of worse times ahead.


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