Chevron and Exxon Post Declining 3rd-Quarter Results.
Decades of financial discipline that honed Exxon Mobil Corp. into the leanest, most-efficient oil company in the world are paying off in the worst market slump since the 1980s. Exxon Mobil’s financial troubles continued Friday, as the oil giant reported another lackluster financial quarter driven by the dramatic decline in oil prices since last summer.DALLAS (AP) — Chevron is cutting up to 7,000 jobs, or 11 percent of its workforce, the latest indication of the toll that low oil prices are taking on the industry.South by Southwest Interactive, the annual festival in Austin, Texas, will hold a day-long summit on the subject of online harassment in March after taking criticism for canceling sessions about sexism and the video-game industry.
But company officials say the Irving-based oil behemoth, unlike some of its smaller rivals, isn’t waiting for an oil-price recovery to expand its operations and doesn’t anticipate mass layoffs.Houston — Exxon Mobil and Chevron reported plunging revenues and profits on Friday, but their fortunes would have been even worse had it not been for a boom in their refining and chemical businesses.
As industry job cuts top 200,000 worldwide, Exxon has kept its 75,300-strong workforce intact with none of the sweeping layoffs seen at other oil companies, including its biggest U.S. rival Chevron Corp. “Exxon is just stronger financially than anyone else out there,” Brian Youngberg, an analyst at Edward Jones & Co. in St. The $340 billion energy giant stood firm despite sharply lower profit in the third quarter, avoiding the kind of writedowns and job cuts that overshadowed results at Royal Dutch Shell and Chevron. Louis, said in an interview. “They were running a leaner ship to begin with.” Exxon posted higher-than-expected third-quarter earnings Friday thanks to soaring profit at its refineries that process oil into fuel.
Integrated oil and gas companies the world over are tightening belts by slashing staff and spending and even contemplating selling the family silver as oil prices remain low. An iron-clad balance sheet and strong cash flow leave the world’s biggest private-sector oil producer primed to acquire assets as weaker rivals falter.
Exxon Mobil has saved about $7 billion in operating costs and $1 billion in capital expenditures this year but it’s on track to boost production to 4.1 million barrels of oil equivalent a day by the end of the year. But the two big U.S. supermajors still can call themselves “dividend aristocrats” by surpassing the quarter century mark in raising their dividends annually.
The annual music, film and interactive-entertainment festival came under fire from Vox Media and Buzzfeed for canceling two sessions about how women are treated in the video-game industry. The plunge came with a 37 percent drop in revenue, in large part because of a 3 percent decline in United States production, including a 9 percent drop in natural gas output. Exxon hasn’t needed to record any of the restructuring charges associated with job eliminations amid the 16-month downturn, and doesn’t expect to do so any time soon, Jeff Woodbury, vice president of investor relations, told analysts during a conference call.
Chevron’s performance was even more disappointing, with net income of $2 billion compared with $5.6 billion last year, although it was the best quarter so far in what has been the toughest year for the American oil business in more than a decade. The fear is that the peasants may become restless on both sides of the Atlantic if big oil companies continue to distribute more cash than they earn while allowing opportunities to pass them by. Chevron plans to cut capital and exploratory spending next year by one-fourth, with further cuts in 2017 and 2018 depending on the oil industry’s condition then. All are committed to multiyear projects, but the cost of obtaining a barrel of oil or a cubic foot of gas reserves is cheaper than it has been in years through the checkbook than the drill bit. Most of the big companies say they are doing all they can to protect their dividends, though Marathon Oil cut its quarterly dividend this week to 5 cents a share from 21 cents a share.
Still, Exxon Mobil said it grew its position in the Permian Basin by a third in the quarter after it bought an interest in 48,000 acres in the Permian Basin adjacent to its footprint in West Texas. Occidental Petroleum said this week that it was selling off its assets in North Dakota’s Bakken shale field, a crown jewel of the hydraulic fracturing revolution only two years ago, for $600 million. Spending on capital projects such as floating oil platforms and gas-export facilities will fall by 25 percent next year and continue to shrink through 2018, Watson said. Their growing reliance on share buybacks in recent years means slashing those—Chevron stopped them entirely and Exxon has cut them by about 85%—can preserve cash and the favor of coupon-clippers. ConocoPhillips announced that it would stop exploration in deepwater offshore fields by 2017 because of the high costs of such operations, while it sells offshore leases, to free $800 million in capital.
Watson tied the job cuts and less-ambitious forecast directly to oil prices that have fallen by half in the past year, the worst 12-month slump since at least 1988, according to data compiled by Bloomberg. “We have a good U.S. upstream business, but it didn’t make any money for us in the past quarter,” he said during the call. Exxon’s shares have also outperformed those of its biggest rivals since crude prices took a dive, leaving it with a stronger currency for making acquisitions. The company wouldn’t say on Friday’s earnings call whether it planned to do any deals, stating only that any acquisition would have to compete with a “diverse inventory” of internal projects. Like Exxon, Chevron benefited from rock-bottom feedstock costs at its refineries: profit from processing oil into fuels jumped 59 percent to $2.2 billion. The Pira Energy Group, a consultancy based in New York, released a report this week predicting a growing demand on global petroleum inventories that could ease the glut. “Global oil demand growth is strong, especially in China, India and the industrialized countries, and will remain so in 2016,” Pira said.
Watson said prices will eventually rise as production slows in response to low prices, but he said it was hard to know when that will happen. “In the long run the industry can’t survive on $45 oil. Reporting that production capacity constraints are limiting OPEC output and that production in major producing countries outside the cartel is also declining, the report concluded, “Supply growth is quickly eroding.” There is much anticipation that the Iran nuclear deal will bring an additional 500,000 barrels or more to the 94-million-barrel-a-day market by late 2016. But at the same time, exports from Libya remain constrained, and violence in Iraq and elsewhere across the Middle East and North Africa is threatening production. U.S. gas dropped 31 percent to a quarterly average of $2.735 per million British thermal units as output from shale fields from the Rocky Mountains to Appalachia continued to overwhelm demand for the fuel. Most significant, perhaps, are signs that Saudi Arabian exports are beginning to ease after a year in which the country has been producing at full tilt to defend its market share in Asia.
When oil prices rise, Youngberg said, oil companies going through the current downturn will be more cautious about hiring and undertaking big projects. With refineries increasing production to meet rising domestic needs, Saudi crude exports appear to have peaked in August, oil experts say, and there is little or no more spare capacity to produce more. Per-share profit was 13 cents higher than the 88-cent average of 21 analysts’ estimates collected by Bloomberg, the sixth time in seven quarters that Exxon surpassed expectations. California-based Chevron said third-quarter income plunged to $2.04 billion, or $1.09 per share, down from $5.6 billion, or $2.95 per share, a year ago.
There are persistent reports in energy circles that Saudi Arabia would like to come to some agreement with Russia and other major producers to bring the global market into balance — as long as it does not mean that Saudi Arabia alone cuts production, as happened with disastrous economic results in the 1980s. “If Russia and OPEC can arrive at an understanding in regards to oil production,” said Sadad al-Husseini, a former senior executive with Saudi Aramco, “it might attract a broader dialogue with others such as Brazil and Mexico and help U.S. and other O.E.C.D. producers,” referring to the Organization for Economic Cooperation and Development. Exxon’s headcount peaked in 1989 at 104,000 and dropped steadily for the next decade to 79,000 in 1998, the year before it bought Mobil Corp. in the biggest-ever energy deal. On Exxon’s conference call with analysts, Friday, the company maintained the same disciplined tone that has characterized its operations. “All of our assets are managed to maximize returns through the life cycle,” said Woodbury, the investor relations chief. “We really focus on those things that we control, like integrity, reliability, productivity — importantly, our development and operating costs — making sure that we’ve got operational flexibility.”