US and European oil companies wrote off $145 billion in less than a year

U.S. and European oil and gas companies wrote off $145 billion in assets in the first three quarters of 2020 due to an unprecedented decline in oil prices, writes The Wall Street Journal. This was the largest three-quarter adjustment in at least a decade, and the entire 2020 promises to be one of the worst in history for the industry.

The COVID-19 pandemic has triggered a massive wave of asset writedowns in Western economies in recent years. But it was the oil companies that revised the value of their business by a record amount - about 10% of the total capitalization, analysts at S&P Global Market Intelligence say. The second largest write-off industry, the financial industry, lost $40 billion.

Asset write-offs usually come at a time when oil producers are facing falling commodity prices and consequently reduced cash flows. But this year, the main reason is the uncertainty of long-term demand in the context of fleet transition to electric traction, the development of renewable energy sources, as well as growing concerns about climate change. “Companies are starting to factor in an irreversible decline in demand, and writedowns are a harbinger of that future,” KPMG profile lead analyst Regina Mayor told the WSJ.

The largest European oil companies Royal Dutch Shell, British Petroleum and Total SE carried out the most "aggressive" review - they accounted for more than one third of all write-offs in the industry. US shale players, including Concho Resources and Occidental Petroleum, have written off more assets than in the past four years combined.

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The end of the oil era, in which the Russian authorities simply refused to believe, turns out to be not far off: we talked about the latest forecasts in this regard in one of our email newsletters.