By Christopher M. Matthews
Big oil companies endured one of their worst second quarters
ever and are positioning themselves for prolonged pain as the
coronavirus pandemic continues to sap global demand for fossil
Exxon Mobil Corp. posted a quarterly loss for two straight
quarters for the first time this century on Friday, reporting a
loss of $1.1 billion, compared with a profit of $3.1 billion a year
ago. Exxon, the largest U.S. oil company, hadn't reported
back-to-back losses for at least 22 years, according to Dow Jones
Market Data, whose figures extend to 1998.
"The global pandemic and oversupply conditions significantly
impacted our second quarter financial results with lower prices,
margins, and sales volumes," Exxon Chief Executive Darren Woods
said in a statement.
Chevron Corp. said Friday it lost $8.3 billion in the second
quarter, down from $4.3 billion in profits during the same period
last year, its largest loss since at least 1998. It wrote down $5.7
billion in oil and gas properties, including $2.6 billion in
Venezuela, citing uncertainty in the country ruled by strongman
Nicolás Maduro. Chevron also said it lowered its internal estimates
for future commodity prices.
Royal Dutch Shell PLC and Total SA reported significant losses
in the second quarter as well earlier this week, as the impact of
the pandemic and a worsening long-term outlook for commodity prices
spurred them to write down the value of their assets.
The dismal results are ratcheting up the problems for the oil
giants, which were already struggling to attract investors even
before the pandemic, as concerns over climate-change regulations
and increasing competition from renewable energy and electric
vehicles cloud the future for fossil fuels.
Holdings of oil and gas stocks by active money managers are at a
15 year low, according to investment bank Evercore ISI. BP PLC,
Shell and Total are all trading at 30-year lows relative to the
overall S&P 500. Exxon is trading at its lowest level to the
S&P 500 since 1977, according to the bank.
Many of the big oil companies have sought to retain investors
despite slowing growth and profits over the past decade by paying
out hefty dividends, but those payouts are proving hard to sustain
during the pandemic.
Crude prices have stabilized at around $40 a barrel, providing
modest relief for the industry after U.S. oil prices briefly turned
negative for the first time ever in April. But none of the world's
largest oil companies now foresee a rapid recovery as countries
continue to struggle with containing the coronavirus.
Chevron CEO Mike Wirth said his company faced an uncertain
future for energy demand and couldn't predict commodity prices with
confidence right now.
"We expect a choppy economy and a choppy market," Mr. Wirth said
in an interview earlier this month. "It all depends on the virus
and the policies enacted to respond to it."
Oil and gas production by both Exxon and Chevron decreased in
the quarter, down 7% and 3%, respectively, from a year ago, as the
companies shut off wells to avoid selling into a weak market.
Exxon's production and exploration business lost $1.7 billion,
which it attributed to lower commodity prices. Chevron's production
unit lost $6.1 billion.
Stockpiles of U.S. gasoline and diesel rose last week, according
to government data released Wednesday. That indicates a slowdown in
demand for transport fuels, which had started to rebound this
summer and are key to the industry's recovery, said data analytics
firm Rystad Energy. Meanwhile, demand for jet fuel is recovering
even more slowly than gasoline, and may not fully bounce back until
2023, according to Bank of America Corp.
U.S. oil prices closed below $40 per barrel Thursday for the
first time in three weeks.
"Covid-19 is the elephant in the room and the U.S. death toll
passing the milestone of 150,000 has spread concern to every kind
of market, and commodities too," said Rystad analyst Bjornar
For the entire second quarter, U.S. oil prices averaged $28 per
barrel and Brent crude averaged about $33, according to Dow Jones
Market Data, prices at which even the largest oil companies
struggle to turn a profit, analysts say.
While major stock indexes have recovered from April, when they
fell to their lowest levels in years, oil and gas stocks have
continued to lag despite the slight rebound in commodity prices, as
some investors lose faith in the companies' business model.
Many of the world's largest energy companies, including Exxon
and Chevron, have for years used an integrated business model,
which has historically allowed them to weather most market
By owning oil and gas wells, along with the downstream plants to
manufacture refined products like gasoline and chemicals, the
companies were long able to capitalize in one sector of their
business, regardless of whether oil prices were high or low.
But that model has failed to deliver strong returns for most of
the past decade, as the world has faced a glut of fossil fuels
triggered in part by America's fracking boom, and it isn't
protecting the companies now, according to Evercore ISI analyst
The largest western oil companies invested about $1.2 trillion
in growth projects over the past decade, according to Evercore, an
investment banking advisory firm, while their combined debt
increased by nearly $200 billion over the same period.
"It's hard to support the idea that the integrated model has
created a lot of value for shareholders," Mr. Terreson said. "A
broad-based reassessment of the capital management programs at the
big oils is required at this point."
Oil companies have been forced to take dramatic action to shore
up their finances in recent months, including cutting tens of
billions of dollars from their budgets and laying off thousands of
Exxon, which had previously disclosed a 30% cut to capital
expenditures in 2020, said on Friday that it has "identified
significant potential for additional reductions" and is now
conducting a comprehensive review of its business, adding that it
would provide details when plans are completed.
Shell has been among the most aggressive, deciding in April to
cut its dividend for the first time since World War II to avoid
having to borrow to fund it.
Shell reported a second-quarter loss of $18.4 billion on
Thursday, which included a $16.8 billion write-down, while French
giant Total posted a $8.4 billion loss including a $8.1 billion
write-down. Both companies report net income attributable to
shareholders, a proxy for net profits. ConocoPhillips also posted a
$1 billion loss Thursday. BP PLC reports Tuesday.
Excluding impairments, Shell and Total actually turned a profit
during the quarter as their trading units helped stave off even
Exxon increasingly stands alone among its peers for not taking a
write-down this year as industry estimates for future oil and gas
prices sour. In addition to Chevron, Shell, and Total, Italy's Eni
SpA has written off billions of dollars of assets, and BP has said
it will also take an impairment. Some have called for Exxon to
write-down billions of dollars of shale natural gas assets.
Exxon and Chevron have promised they will maintain their
dividends, viewed by many investors as the most attractive part of
owning their stocks. But both companies have also taken on more
debt this year. Some analysts predict Exxon may be forced to cut
its dividend in 2021 if market conditions don't recover.
Exxon's dividend payments cost the company almost $15 billion a
year. The company's debt grew by $8.8 billion in the quarter,
according to Goldman Sach Group Inc., which said Exxon will need
oil prices around $75 per barrel in 2021 to cover its dividend
payments from cash flow. Exxon said Friday it wouldn't take on
Dan Pickering, chief investment officer of energy investment
firm Pickering Energy Partners LP, said the industry can survive at
$40 oil but needs significantly higher prices to thrive. According
to Mr. Pickering, who said he holds small positions in Exxon and
Chevron, oil companies will have to continue cost-cutting for the
"You've got to assume that this is the world we're going to be
in, Mr. Pickering said. "And, if this is the world we're going to
be in, the cost structure is too high."
--Dave Sebastian contributed to this article.
Write to Christopher M. Matthews at
(END) Dow Jones Newswires
July 31, 2020 10:22 ET (14:22 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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