Majors bounce back in Q1 21 with transformation & transition focus

The first Quarter of 2021 saw a significant bounce-back for pandemic-hit oil majors as earnings increased and debt was reduced.  Investments in renewable and low-carbon technologies appears to be the focus for the future.

With only a couple of exceptions, Q1 figures from the world's oil majors and lubricants producers indicated a strong bounce-back from the effects of the COVID pandemic, helped by an increase in oil and gas prices, although the pandemic, combined with severe weather conditions in the US, has still impacted the bottom line for some. The overall effect was significantly higher income, allowing net debt reductions - in some cases ahead of target.

The announcements were coupled with the frequent use of the words "transition" and "transformation" to describe rapidly increasing investments in renewable and low-carbon energy production. This trend was highlighted by business analyst, Bloomberg, which picked up on the majors' Q1 announcements, while focusing on the investment strategy and success of the lesser-known Equinor ASA, Norway's state-owned oil producer.   

In its Q1 announcement, Shell revealed adjusted earnings of $3.2bn, against just $393m in Q4 last year, with net debt reduction of $4bn and generating $8bn in cash over the Quarter. Integrated gas, renewables and energy solutions contributed the greatest adjusted earnings ($1.4bn), with upstream providing just under $1bn.  But underlying the numbers was Shell's clear intentions towards renewable and low-carbon energy.  With its headline image showing Shell employees at a solar power 'farm', the media release headlines also included its claim to be "the first energy company to submit its Energy Transition Strategy to shareholders for an advisory vote at the Annual General Meeting."

And "transformation" was also a key focus of BP's Q1 statement as it revealed a complete turnaround of fortunes in 12 months, with profits of $4.7bn in the first Quarter of 2021, against a $4.3bn loss for the same period last year. CEO, Bernard Looney, talked about "performing while transforming" - stating that a combination of divestments (some $4.8bn for the Quarter), net debt reduction (down $5.6bn to £33.3bn) and investment in offshore wind and electrification demonstrated a new direction for the company. 

Meanwhile ExxonMobil announced positive news of $2.7bn Q1 earnings, turning around a massive $20bn loss in the previous quarter and set against a $610m loss in Q1 last year.  Helped by high commodity prices, the company emphasised the positive impact on debt reduction ($4bn) and, like its competitors, highlighted its transition agenda. According to the announcement: "We also made progress on our energy transition strategy by launching our new ExxonMobil Low Carbon Solutions business, which is initially working to develop innovative, large-scale carbon capture and storage (CCS) concepts, including the evaluation and advancement of more than 20 new opportunities, such as a multi-industry hub to reduce emissions from hard-to-decarbonise industries near the Houston Ship Channel."

French major, Total, saw adjusted net income of $3bn exceed levels last seen in Q1 2019 ($2.8bn) and well above the $1.8bn recorded in Q1 last year. Helped by the rise in oil and gas prices, the company's gas and renewables division recorded record net operating income of $1bn, with Renewables and Electricity alone contributing an EBITDA of $350m.  The company also stated that it had increased its installed renewable power generation capacity from 3GW to almost 8GW, with a $2bn investment in renewables. 

Chemicals and additives giant, Fuchs, provided arguably the most effusive statement of the Quarter, stating: "The pleasing start to the year with sales revenues of EUR 697 million and earnings of EUR 101 million exceeded our expectations." The news led the company to slightly raise its full-year profits forecast. Sales had been boosted by a strong performance from Fuchs PETROLUB which included record sales in Asia-Pacific, in particular as a result of strong demand from China's automotive sector. However, the company warned that despite the positive outlook, it faced the challenge of "huge price increases" and shortages of raw materials. 

Only US-based Chevron and Phillips 66 bucked the positive trend, both reporting lower Q1 figures than in 2020.  Chevron still managed to show positive earnings of almost $1.4bn (from $3.6bn in Q1 20), while Phillips revealed a Q1 loss of $645m - adjusted to $509m - against a $539m loss in the previous Quarter.  Both companies blamed the severe storms that hit the Central and Gulf Coast regions of the US. However they were also keen to emphasise their investment in low-carbon technology development including geothermal power and renewable diesel.