Exxon Profit Jump a Sign of Strengthening Oil Companies -3rd Update
April 28 2017 - 9:55AM
Dow Jones News
By Bradley Olson and Anne Steele
The world's biggest oil companies are seeing their highest
quarterly profits in more than a year.
Exxon Mobil Corp. on Friday reported its best quarter since
2015, notching a $4 billion profit. It was more than double what it
posted in the first quarter a year ago, when crude prices fell to
the lowest level since 2003.
Chevron Corp., which reported a loss last year, on Friday posted
a profit of $2.7 billion. The rosy results came a day after French
energy company Total SA reported a 77% rise.
Shares of Exxon, down 10% so far this year, climbed 1.5%
premarket to $82.44. Chevron shares rose 2.5%.
The improvements reflect a partial recovery from low oil prices
after a plunge in 2014, but the optimism is tempered by growing
concerns over whether a frenzied return to U.S. drilling will once
again swamp markets.
Royal Dutch Shell Plc and BP Plc, which will report early next
month, are also expected to show sharp increases. The improved
performance stems from both higher prices and revenue from new
projects that have come online after years of multi-billion
investments in far-flung places.
"These companies are cutting their cost structures, said Brian
Youngberg, an energy analyst at Edward Jones. "They are leaner and
have managed to get more out of each dollar they spend, and it is
showing in their results."
As oil prices recovered in the last year to prices above $50 a
barrel, U.S. oil companies returned to shale fields at a breakneck
pace. The number of rigs operating has more than doubled from a
year ago, according to RigData. U.S. production has risen to about
9.3 million barrels a day, just 3% shy of the 2015 peak.
The increase has been driven in part by lower costs that have
improved drilling prospects in a number of fields, as well as
positive sentiment stemming from a production cut from the
Organization of the Petroleum Exporting Countries.
Still, some investors and market analysts are concerned that the
pace of the U.S. return to drilling has been too hot, raising the
prospect that new shale production could bring so much new supply
that prices will remain mired around $50 a barrel for years.
While the companies have managed to generate enough cash at that
price to pay for new investment and dividends, executives have
acknowledged that it will be difficult for them to grow
significantly unless oil prices rise further.
Exxon lost money for the ninth straight quarter in its U.S.
drilling business, losing $18 million, an improvement from a loss
of more than $800 million a year ago. Still, the continued
struggles to turn a profit in that business has troubled some
investors, given that Exxon and Chevron have made shale operations
a major focus for future growth and profitability.
Both companies have unveiled dramatic growth plans for the
Permian basin in West Texas and New Mexico. Chevron said its U.S.
production operations earned $80 million in the quarter.
Earnings growth for oil-and-gas companies could hit double
digits in the first quarter of 2017, said Joseph Tanious, senior
investment strategist for Bessemer Trust. "When oil prices were
dipping lower, that was having a drag on the overall results for
the S&P 500," he said. "Now we're seeing the opposite of
that."
Write to Bradley Olson at Bradley.Olson@wsj.com and Anne Steele
at Anne.Steele@wsj.com
(END) Dow Jones Newswires
April 28, 2017 09:40 ET (13:40 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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