By Bradley Olson and Rebecca Elliott
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 27, 2019).
The world's largest oil companies are reporting underwhelming
first-quarter profits during a time of geopolitical challenges and
weaker global commodity prices.
Sanctions in Venezuela, production cuts in Canada and lower
natural-gas prices in Asia took a toll on Exxon Mobil Corp.,
Chevron Corp. and other companies. The business of refining crude,
one of the most reliable profit centers in the industry during the
last five years, was especially hard-hit.
The anemic results added to concerns about the direction of
crude prices, where lackluster demand, excess gasoline and a
buildup of oil in storage led analysts to question whether a market
rally of more than 40% this year may soon come to a close.
U.S. oil prices reported their largest one-day decline in dollar
terms since Christmas Eve, falling 2.9%, or $1.91, to close at
$63.30. The decline followed remarks by President Trump, who told
reporters that he "called up OPEC" and asked the group to help
lower fuel costs. President Trump, on Twitter, has repeatedly asked
the Organization of the Petroleum Exporting Countries to increase
production and lower gasoline prices.
According to people familiar with the matter, however, Mohammed
Barkindo, OPEC secretary-general, hasn't spoken with Mr. Trump, nor
has Khalid al-Falih, the energy minister of OPEC kingpin Saudi
Arabia. Mr. Trump also hasn't discussed lowering oil prices with
Saudi Crown Prince Mohammed bin Salman, Saudi officials said.
The White House didn't respond to a request for comment.
Exxon said earnings fell in every business segment inside and
outside the U.S., and the company's refining operations -- a profit
machine for decades in times of high prices and low -- showed a
loss of $256 million in the quarter. Overall, net income dropped to
$2.35 billion, the lowest in three years.
"It was a tough market environment for us this quarter," said
Exxon Senior Vice President Jack Williams, who oversees the
company's refining and chemicals businesses on its management
committee. "The margins were at historically low levels."
French oil giant Total SA missed earnings expectations, and
Chevron said profits fell by almost a third to $2.6 billion. BP PLC
and Royal Dutch Shell PLC are set to report next week.
For the refining crude business, in the past five years it has
contributed about 34% of the combined net income of Exxon and
Chevron, and in some years it made up more than 50% of profits, a
bulwark against the volatility of oil.
"They're still making money, but the fat margins have
disappeared," said Sandy Fielden, director of oil research for
Morningstar Inc.
Exxon, Chevron and independent U.S. refiners were hit by
production declines in Venezuela and Canada that led to scarcity
and higher prices for heavy oil, which can be highly profitable to
refine because it has generally been cheaper than lighter grades.
Yet when the difference in those prices narrows, it typically hurts
refining profits.
Exxon reported earnings per share of 55 cents, almost 50% below
the first quarter last year and missing analyst expectations. Sales
fell about 7% to $63.63 billion. Production rose to 3.9 million
barrels of oil and gas a day, a 2% increase from the same period
last year.
Chevron posted earnings of $1.39 a share, down from $1.90 a
share in the first quarter of 2018, and short of analyst
expectations. Production rose, but Chevron's share prices was
roughly flat before markets opened as investors waited for more
signals on whether the company will raise its $33 billion offer for
Anadarko Petroleum Corp.
Occidental Petroleum Corp. recently launched a potential bidding
war for Anadarko, making public a $38 billion offer.
Chevron Chief Executive Mike Wirth declined to say Friday
whether the company would raise its price and reiterated the
company's case for why it is a better buyer, including its larger
size and balance sheet that "mitigates risk."
"Our companies simply have the best strategic fit," he said.
"There are a whole host of reasons why we have a very compelling
transaction."
Last year, many refiners benefited from steeply discounted crude
in West Texas and Canada, where pipeline bottlenecks left oil
landlocked and depressed regional prices. But markdowns for
heavier, more sulfurous oil have eroded in the wake of production
curtailments in Canada and U.S. sanctions on Venezuela.
That has weighed on the margins refiners earn on each barrel of
oil they process into fuels such as gasoline and diesel.
Valero Energy Corp. generated $141 million in net income during
the first quarter, about 70% less than during the same period last
year, the company said Thursday. Its refining margin fell to $7.97
a barrel during the quarter, from $8.65 a year ago.
"The first quarter presented us with tough market conditions,"
Chief Executive Joe Gorder told investors, citing narrower
oil-price differentials paired with high gasoline inventories and
low margins for making the fuel.
Mexico's Maya crude, a heavier oil, traded for an average of
less than $4 a barrel below Louisiana Light Sweet, a Gulf Coast
benchmark, during the first quarter, according to S&P Global
Platts. That compares with an average discount of about $8 a barrel
during the same period last year.
Heavy Canadian oil, meanwhile, sold for an average of roughly
$10 less than West Texas Intermediate during the first quarter,
compared with an average discount of about $26 during the
year-earlier period, S&P Global Platts data show.
--Benoit Faucon, Summer Said and Micah Maidenberg contributed to
this article.
Write to Bradley Olson at Bradley.Olson@wsj.com and Rebecca
Elliott at rebecca.elliott@wsj.com
(END) Dow Jones Newswires
April 27, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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