Low Crude Prices Hammer Big Oil Companies
July 29 2016 - 12:30PM
Dow Jones News
Exxon Mobil Corp. saw profit fall 60%, and Chevron reported a
third-straight quarterly loss on Friday, capping off a week of
lackluster results for the biggest Western oil companies and
underscoring the continued challenge they face as crude prices fall
to just above $40 a barrel.
Shares of both companies fell Friday morning, following a
pattern that began when BP PLC and Royal Dutch Shell PLC earlier
this week reported results that failed to meet investor
expectations.
The decline in Exxon's net income to $1.7 billion, compared with
$4.19 billion in the same three-month period a year earlier, far
exceeded the fall in oil prices, which were down by about 26% over
the same time.
Exxon, Chevron, BP, Shell and French oil major Total SA have cut
spending by almost $50 billion since 2013 and slashed tens of
thousands of jobs, but those efforts haven't been enough. Crude
remains mired well below the level the companies have said they
need to fund spending and dividends with cash from operations.
"The second-quarter results reflected lower oil prices and our
ongoing adjustment to a lower oil price world," said Chevron
Chairman and Chief Executive John Watson.
Exxon's profit was the lowest since 1999, a year when it nearly
doubled in size by acquiring rival Mobil in an $80 billion deal.
Shares recently fell 2.4% to $88.06 as the company posted its
seventh straight quarter of year-over-year profit declines and
eight straight quarters of falling revenue, according to FactSet
data.
Revenue dropped 22% to $57.69 billion, below analysts' forecast
for $60.64 billion. The company also continued to struggle in its
U.S. drilling operations, losing $514 million compared with $47
million a year ago. During the quarter, Exxon slashed its capital
and explorations spending 38% $5.16 billion.
Exxon Chairman and Chief Executive Rex Tillerson said the
results "reflect a volatile industry environment."
The company continues to look for deal opportunities after its
announcement of plans to buy InterOil Corp. for at least $2.5
billion earlier this month, the company's biggest acquisition since
2010. Any potential deal would have to measure up to Exxon's
current investment opportunities, Jeff Woodbury, the company's vice
president, told investors Friday.
"We've got to have confidence that we can bring value to it," he
said.
Chevron's loss of $1.47 billion was its largest since 2001.
Shares fell 1.4% to $100.35. Revenue slid 27% to $29.28 billion.
Analysts had projected earnings of 32 cents a share on $28.54
billion in revenue.
Upstream operations, which include exploration and drilling,
meanwhile, were hit even worse by the plunge in energy prices. In
the U.S., the segment's loss deepened to $2.46 billion from $2.22
billion a year ago.
Mr. Watson said the upstream business recorded impairment and
other charges on certain assets where revenue from expected oil and
gas production is expected to be insufficient to recover costs.
Both companies saw profits decline markedly from their refining
units, businesses that had helped make up for losses from producing
oil and gas in the two years since oil prices began falling. Vast
new supplies of gasoline around the world, combined with the
overproduction of oil, has sent crude prices sliding.
Refineries have been on a buying spree since crude-oil prices
began their descent two years ago, giving them cheap feedstock to
make gasoline, diesel and other fuels. But while demand for
gasoline has been strong, particularly in the U.S., consumption
hasn't been enough to mop up all the fuel spilling out of
refineries.
Exxon's refining and marketing operations earnings were $825
million, down 45% from the year-earlier period. Chevron saw profits
from that business unit plunged 57% to $1.28 billion.
Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele
at Anne.Steele@wsj.com
(END) Dow Jones Newswires
July 29, 2016 12:15 ET (16:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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