Exxon, Chevron earnings plunge on lower oil prices

Exxon reported quarterly profits of $3.2 billion. (GETTY IMAGES/AFP)
Updated 02 November 2019

Exxon, Chevron earnings plunge on lower oil prices

  • The companies have pumped heavy investment into the Permian Basin

NEW YORK: US oil giants Exxon Mobil and Chevron have reported a drop in their third-quarter profits on lower oil prices, even as increased investment in US shale projects boosted output.

The companies have pumped heavy investment into the Permian Basin, a shale-rich region in Texas and New Mexico drawing considerable interest due to newer technologies that have made developing unconventional shale resources profitable.

These efforts enabled Exxon and Chevron, the two biggest US oil companies, to increase overall oil and gas production in the quarter ending September 30.

But results were dented by a retreat in crude oil prices during the three-month period, as signs of a slowing global economy amplified worries about a glut
of supply.

US oil prices traded in the $50-$60 a barrel range for much of the quarter, down about $15 from the previous year.

Exxon reported quarterly profits of $3.2 billion, plunging by 49.2 percent from the year-ago period, as revenues fell 15.1 percent to $65 billion.

CEO Darren Woods said that the company’s ramp-up in the Permian was running ahead of schedule, saying “we are making excellent progress on our long-term growth strategy.”

At Chevron, net profits were $2.6 billion, which was 36.2 percent below the same period of 2018. Revenues were $36.1 billion, a 17.9 percent decline.

“Third quarter earnings and cash flow were solid, but down from our very strong results of a year ago,” said Chevron CEO Michael Wirth.

“Lower crude oil and natural gas prices more than offset a three percent increase in net oil-equivalent production from last year’s third quarter.”

Also on Friday, Royal Dutch Shell faced a torrent of criticism from analysts for warning of possible delays to its $25 billion share buyback program, with some saying the move had undermined the credibility of the oil giant’s management.

Shell, the world’s second-largest listed oil and gas company, saw its shares close more than 4 percent lower on Thursday, wiping out $10 billion of its market value.

The oil giant had earlier reported stronger-than-expected third-quarter profits which were, however, overshadowed by CEO Ben van Beurden’s warning about shareholder returns.

“The prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to
25 percent and completing the share buyback program within the 2020 timeframe,” van Beurden said.

“The planned $25 billion share buyback before end-2020 was acknowledged by the CEO as a ‘statement of the obvious.’ We agree but it had a predictable and in our view unnecessary impact,” UBS analyst Jon Rigby said in a note.

The comments, Rigby said, “are likely to exasperate long-suffering investors further.” Rigby retains a ‘buy’ recommendation for Shell.

Shell, the most profitable oil major in 2018 ahead of larger rival ExxonMobil, has in recent years been many investors’ top pick among the group after the Anglo-Dutch firm cut costs and ramped up commitments for shareholder returns.

Shell plans to boost payouts to investors through dividends and share buybacks to $125 billion between 2021 and 2025.

Bernstein analyst Oswald Clint said van Beurden was being over-cautious.

“We’ve no doubt reiterating our buy on Shell is like talking to the wall today and it’s a blow for one of our 2019 top picks,” Clint said in a note.

Virtual oil summit planned amid ongoing market volatility

Updated 04 April 2020

Virtual oil summit planned amid ongoing market volatility

  • Meeting follows call from Saudi Arabia for urgent meeting and telephone diplomacy between Kingdom, Russia and the US

DUBAI: Leaders of the global oil industry are planning a crucial “virtual” summit next Monday amid ongoing volatility in crude prices and falling energy demand.

The meeting follows a call from Saudi Arabia on Thursday for an urgent meeting and a round of telephone diplomacy last week involving the Kingdom, Russia and the US, as well as meetings between policymakers and oil industry executives.

The summit is expected to involve the 11 members of OPEC as well as other oil producers from the OPEC+ group.

But exactly which countries will take part in the summit was still up in the air last night. 

Russian President Vladimir Putin was holding talks with executives from the country’s major oil companies before deciding whether or not to participate. The Russian leader has previously indicated his willingness to get involved in talks to help resolve the crisis in the global energy industry, but Russia was also the country that refused to take part in a round of deeper production cuts proposed by Saudi Arabia in Vienna last month, sparking the current price war.

In response to that refusal, the Kingdom increased production and lowered its selling prices. On Sunday, Saudi Aramco, which has pushed output to a record 12.3 million barrels per day, is scheduled to announce its “official selling prices” (OSP) for the month of May, expected to show a continuation of the deep levels of discount to attract customers, especially in Asia, in the battle for global market share. 

Brent crude continued its rollercoaster ride on global markets on Friday, dipping nearly 5 percent before hitting a high of 17.5 percent up at $34.91, before paring gains to about $33.

The options for the producers at Monday’s meeting are limited, in the face of an unprecedented drop in global oil demand. By some estimates, more than 20 million barrels of daily demand was lost last month, the biggest ever contraction in oil history.

Saudi Arabia and Russia, which between them produce around 23 million barrels per day, are unlikely to be willing to take all the pain of bigger cuts without an offer from the Americans.

US President Donald Trump tweeted on Thursday that he expected between 10 million and 15 million barrels of oil to be taken out of supply, but he did not specify where this would come from. Meetings were expected to take place at the White House with oil industry executives and policymakers on Friday.

Daniel Yergin, Pulitzer Prize-winning oil expert, said: “The ‘when,’ ‘how’ and ‘who’ of the potential deal remain unclear. And the larger the universe of players the more difficult it will be to implement an agreement.”

OPEC+ consists of the 11 OPEC members, led by Saudi Arabia, plus 10 non-OPEC producers, of which Russia is by far the biggest.

The involvement of the US in the Monday meeting is also unclear. America is not an OPEC member, but US oil executives have attended OPEC deliberations in the past. American participation in any new rounds of output cuts will be constrained by the fact that the US oil industry is made up of private companies — as opposed to state-directed corporations — whose interests diverge.

While big players including Exxon Mobil and Chevron might be willing to take some advice from the White House, the smaller companies in the Texas shale fields are more focused on the immediate financial repercussions of the past month’s volatility.