UK-listed oil and gas companies have recorded more profit warnings in the second-quarter than the whole of 2019, EY said in a new report on Thursday.
During the April-June period, oil and gas companies issued ten profit warnings, compared to seven in 2019. In the first six months of 2020, there were 14 profit warnings issued by FTSE Oil, Gas & Coal companies, which is a 14-fold year-on-year increase.
Warnings occur when a listed company advises shareholders and the public that its earnings results will not meet analyst expectations. Of these, 79% were attributable to the Covid-19 pandemic, Kallanish Energy learns.
“The biggest short-term issue for the oil and gas sector is the sharp drop in demand and in oil prices, triggered by the Covid-19 pandemic. While dealing with rapid decreases in the oil price isn’t new to oil companies, the root cause this time is more complex and the outlook more uncertain than ever,” said Celine Delacroix, EY’s Global oilfield services leader.
“We may have already passed ‘peak oil’ and the sector is radically rethinking both its short and long-term outlook. It’s this combination of low prices and exceptionally high levels of uncertainty that has led to significant capex cuts and widespread write-downs,” added Delacroix.
The expert warned that the next few months “will be about survival” for some companies, which will most likely be focusing on cutting costs and raising capital “before debt markets tighten even further.”
In the long-term, companies will need to create a stronger focus on technology, efficiency and investment to meet the challenges of a low-price environment and decarbonization, according to EY.
In this evolving environment, consolidation within oilfield services is “inevitable,” Delacroix said. “The companies that drive forward with M&A activity and embrace diversification to be cleaner and greener are the ones most likely to secure a positive, long-term future.
This post appeared first on Kallanish Energy News.