Global Oil Company Writes Off 160 Trillion Won in Assets... Oil Price Outlook Remains Bleak

Impact of COVID-19 Shock Causes Oil Price Collapse
Renewable Energy and Electric Vehicles Overshadow Oil Demand Outlook

[Asia Economy Reporter Naju-seok] As the new coronavirus infection (COVID-19) pandemic caused oil prices to plummet and triggered a crisis, global oil refiners have decided on large-scale asset write-downs. The unprecedented level of asset write-downs by global oil companies reflects the uncertainty of the oil industry's future.

According to an analysis by the Wall Street Journal (WSJ) on the 27th (local time), global oil refiners decided on asset write-downs totaling $145 billion (160 trillion won) during the first to third quarters of this year. This surpasses the records of $72.1 billion in 2015 and $18.5 billion in 2016, when oil prices sharply dropped and large-scale asset write-downs occurred.

The oil industry has traditionally decided on asset write-downs reflecting the value of assets such as oil or natural gas wells when oil prices plummeted and cash flow worsened. Oil companies have reduced dividend burdens through asset value write-downs and have also adjusted debt ratios to reflect reality. However, this year’s case is unprecedented.

Regarding this, the WSJ analyzed that global oil companies are concerned about the long-term recovery of the crude oil market. Besides the impact of COVID-19, factors such as the increase in electric vehicles, expansion of power generation using renewable energy, and concerns about climate change are darkening the future of the oil industry.

But above all, the direct crisis is the uncertainty about how long the decline in oil demand caused by COVID-19 will continue.

Starting with European oil companies such as Royal Dutch Shell and BP, American oil companies like Concho Resources and Occidental Petroleum have also consecutively undertaken asset write-downs. In the fourth quarter of this year, ExxonMobil and Chevron are also expected to carry out asset write-downs, which will increase the scale of write-downs on an annual basis.

Regina Meyer, Global Energy Lead at KPMG, introduced, "Asset write-downs not only reflect short-term reductions in asset value but also the belief held by many companies that oil prices will not recover to previous levels."

In fact, global oil refiners are internally revising their oil price forecasts downward. As expectations for oil price recovery decline, global oil companies are showing a more cautious attitude toward new investments.

This content was produced with the assistance of AI translation services.