The five integrated oil super majors closed the books for 2020, and the numbers looked dreadful but could have been worse. Revenues fell an incredible 36%, from $1,218 billion to $778 billion, due to a combination of lower prices and volume sold. Reported net income plunged from $48 billion to a loss of $77 billion. We would argue that the number are not as bad as they look. First, the net loss of $77 billion consisted of a $6 billion loss on operations and $71 billion loss due to write offs (largely non cash). In other words, the industry almost broke even in its operations despite the drastically lower sales and prices, The bulk of the reported loss came about because the oil companies had to write down bad investments made in the past. As another way of putting it, the oil companies under depreciated their assets in the past (overstated their earnings) and the chickens have come home to roost. Second, the companies generated considerable cash flow from operations, roughly $96 billion, which more than covered the capital expenditures of $74 billion, but did not provide enough surplus to sustain the old dividend payments. Third, the companies ended the year with the ratio of debt to capitalization at 36% and debt to EBITDA of 3.4x. For those of you who are not debt analysts, those numbers may not qualify as outstanding, but certainly not signs of impending disaster. But that is past. Let’s look ahead to 2021. Based on Wall Street estimates, the five companies will net $33 billion, a fabulous improvement, but only a return of 5% on equity, compared to 7% in 2019. (Regulated electric companies earn far higher returns.) Cash flow from operations would rise to about $135 billion. The companies could pay a respectable 4% dividend of $28 billion, finance a bigger capital program of $80 billion and still have $12 billion left over to fund new ventures and $15 billion to pay down debt. Cutting the dividend yield to 2% would free up another $14 billion. But, either way, the money available is not large enough to make the new, green businesses significant for a long time. But what’s the rush? The companies are solid. They have time. Related: How Much Higher Can Oil Prices Go? And that is the irony of 2020’s results. Maybe they were not bad enough to shake up the industry. They did some short term damage but 2021 will be better, so where’s the sense of urgency? In the meantime, buy enough windmills to fend off complaints from ESG investors. Table 1. Big Five Oil Companies 2010 By Leonard Hyman and William Tilles More Top Reads From Oilprice.com: Morgan Stanley: Gasoline Industry Is About to Become Totally Worthless Can Exxon Bounce Back From A Disasterous 2020? The Oil Deal That Could Break Up Iraq Read this article on OilPrice.com