XOM Exxon Mobil Corp

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)

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