Big Oil Companies Finished 2018 Strong Despite Plunge in Oil Prices -- Update
February 01 2019 - 1:12PM
Dow Jones News
By Bradley Olson
HOUSTON -- The world's largest Western oil companies shrugged
off a plunge in oil prices in the final months of 2018 and posted
some of their biggest annual profits in years.
The strong fourth-quarter earnings Friday by Exxon Mobil Corp.
and Chevron Corp., following similar results by Royal Dutch Shell
PLC Thursday, demonstrated that the big oil companies are seeing
benefits from a more disciplined strategy focused on returns and
profitability over growing production. The companies have
restructured their businesses, sold off assets and positioned
themselves to thrive even when crude prices swing up and down
wildly.
Global crude prices fell by 38% at the end of the fourth
quarter, but Exxon still generated $6 billion in net income in the
period -- lower than the year before, which was boosted by the U.S.
tax overhaul, but still better than analysts had expected. Chevron
said net income was $3.73 billion, up 19% from the same time a year
ago. Both companies substantially increased U.S. shale production
in the booming Permian Basin in West Texas and New Mexico.
Even with global crude prices averaging about $71 a barrel last
year, about a third lower than in 2014, the five biggest companies
-- Exxon, Chevron, Shell, BP PLC and France's Total SA -- are on
track to post combined annual profits of about $84 billion, 13%
higher than four years ago, when oil sold for more than $100 a
barrel before falling, according to FactSet data.
"These companies have figured out how to operate in this new
environment, and they have adjusted well" to lower prices, said
Brian Youngberg, an analyst at Edward Jones in St. Louis. "The key
going forward will be maintaining discipline. This is now a
low-growth industry, so you've got to invest well."
Shell, Exxon and Chevron shares have rallied. Chevron's board
authorized a $25 billion share repurchase program, signaling to
investors that returns continue to be a priority.
On Thursday, Shell said it nearly doubled profits in 2018 from
the previous year, posting net income of about $23 billion.
Production at Exxon rose above 4 million barrels a day of oil and
gas for the first time since early 2017.
Exxon Chief Executive Darren Woods has embarked on a $230
billion plan to revitalize the oil giant, targeting drilling
opportunities around the world that he has said are the most
attractive he's seen in decades. Those include shale wells in West
Texas, natural gas export facilities in Papua New Guinea, a string
of giant discoveries in the South American nation of Guyana and
developments in Mozambique and Brazil.
While many analysts consider those projects to be extremely
attractive, they aren't set to pay off in a big way for a few more
years. Exxon's shares fell about 15% in 2018, including dividends,
the worst performance for the company in at least 20 years,
according to FactSet data.
Mr. Woods said the company's ability to produce massive amounts
of oil and gas while also having the logistics and refining
capability to process barrels into fuel and other products was a
critical bulwark in 2018.
"The price environment in 2018 was unpredictable, which once
again demonstrated the value of our integrated business model," Mr.
Woods said. That vertical integration "allowed us to avoid the
impact of market dislocations and thus capture the full value of
our barrels," he added.
Mr. Woods also signaled that Exxon is set to step up asset sales
in its exploration and production business, which he plans to
reorganize into three new companies beginning in April. The company
recorded a $429 million impairment charge in the quarter, much of
which was from assets in North America "with limited development
potential." Total revenue and other income rose 8.1% to $72
billion.
Chevron Chief Executive Mike Wirth said the company has been in
discussions with U.S. officials related to its operations in
Venezuela and believes they will continue operating in a safe and
stable way for the foreseeable future. Chevron was among the
companies that received an exemption from U.S. sanctions imposed
this week against Venezuela's oil industry. The exemption is set to
expire in later this year, but it is possible several companies may
continue to receive waivers, according to analysts.
Chevron plans to continue buying back significant quantities of
shares, and the company is set to purchase a Texas refinery. That
will allow the company to step up how much light crude it can
process as it ramps up production in the Permian Basin. Like Exxon,
Chevron nearly doubled its output in the region in 2018.
"We continue to maintain our commitment to capital discipline,"
Mr. Wirth said. "We intend to win in any environment."
Total revenues at Chevron rose 13% to $42 billion, and
production of oil and gas rose 7% to the equivalent of 2.93 million
barrels a day. Excluding asset sales, the company said it expects
production to grow by 4% to 7% in 2019.
Allison Prang and Kimberly Chin contributed to this article.
Write to Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
February 01, 2019 12:57 ET (17:57 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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