Azernews.Az

By Bloomberg

After taking a battering from the crash in crude prices, Europe’s oil and gas producers are gaining some relief from the relentless slide in the euro.

France’s Total SA, Italy’s Eni SpA and Repsol SA of Spain will benefit most from earning revenue from oil and gas sales in U.S. dollars -- the industry’s dominant currency -- while paying a large chunk of salaries, rent and other costs in euros, according to data compiled by Bloomberg Intelligence.

The positive impact of the euro’s slump will give the region’s oil companies an edge over rivals in the U.S. as they grapple with a drop in prices from more than $100 a barrel in June to less than $60 today. Investors are taking notice: an index tracking European energy companies is up 7.7 percent this year, while a U.S. equivalent has dropped 6.4 percent.

“Foreign exchange effect can be quite substantial for euro oil companies,” said Philipp Chladek, an analyst at Bloomberg Intelligence in London. “The euro’s 20 percent devaluation since Brent crude’s latest peak in June 2014 has softened the oil-price decrease for European oil producers.”

Here’s an illustration of how big an impact currency can have. While benchmark crude prices dropped 50 percent last year in dollar terms, the slide has been just 36 percent when oil’s priced in euros, according to Bloomberg Intelligence.

The effect of the euro’s slump can be seen in the relative share performance of European and U.S. oil companies this year. Eni has gained 13 percent, Repsol 7.7 percent and Total 7.5 percent, while Exxon Mobil Corp. and Chevron Corp., the largest U.S. producers, are down 8.9 percent and 8.3 percent respectively.

Earnings Outlook

The impact of currency movements can also be seen in the outlook for earnings.

Total’s adjusted net income is projected to fall 35 percent this quarter, according to estimates compiled by Bloomberg. Repsol is seen declining 25 percent. Those numbers aren’t great, but they’re better than the 64 percent slump expected at Exxon and 74 percent drop predicted at Chevron.

Repsol and Eni, as well as smaller rivals like Portugal’s Galp Energia SGPS and Austria’s OMV AG, will benefit because they report in euros, translating the weaker currency directly into their income statements. While France’s Total will still gain from having a good proportion of costs in euros, it now reports results in dollars.

“There’s a positive translation impact for European oil and gas producers reporting in euros, like Eni and Repsol,” said Jean-Pierre Dmirdjian, an analyst at Liberum Capital Ltd. in London. “Most of these companies’ downstream activities are in Europe and there they benefit from the euro’s decline against the dollar.”

Accelerated Tumble

Even though the euro’s tumble versus the dollar has accelerated this week as the European Central Bank started its bond-buying program, the effect of the weaker currency was already felt in fourth-quarter results, announced by companies last month.

Lower oil “didn’t impact as badly as it could have been, however, given that the dollar was also strong against the euro,” David Davies, chief financial officer of Vienna-based OMV, said on a call with investors on Feb. 19.

The euro dropped as low as $1.056 on Wednesday, the lowest since 2003, and headed for a record quarterly decline.

The consequences of a weaker currency aren’t all positive. Oil companies tend to borrow heavily in dollars and that may force some to revalue their debts in euro terms, Bloomberg Intelligence’s Chladek said.