The race is on

More belt-tight­en­ing ahead as Exxon, Chevron prof­its dive


U.S. oil giants Chevron and ExxonMo­bil sig­naled Fri­day fur­ther belt-tight­en­ing ahead as the in­dus­try re­sponds to lower oil prices that slammed earn­ings in the sec­ond quar­ter.

Chevron said it was trim­ming 1,500 jobs as it cuts 2015 cap­i­tal spend­ing about US$5 bil­lion com­pared with last year. Fur­ther cap­i­tal spend­ing cuts are likely in 2016 and 2017, ex­ec­u­tives said.

“We’re get­ting our cost struc­ture down, through rene­go­ti­a­tions across the sup­ply chain and by siz­ing our con­trac­tor and em­ployee work­force to re­flect lower ac­tiv­ity lev­els go­ing for­ward,” said Chevron chief ex­ec­u­tive John Wat­son.

ExxonMo­bil ex­pects a “down­ward vec­tor” on cap­i­tal spend­ing in 2015 com­pared with ear­lier fore­casts, as it pushes ef­fi­cien­cies on con­trac­tors, said vice pres­i­dent Jeff Wood­bury.

“What we are look­ing for al­ways is to drive the cost struc­ture down in the busi­ness,” Wood­bury said.

The moves come on the heels of much lower earn­ings that sent shares of both Dow com­po­nents plum­met­ing. In late- af­ter­noon trade, ExxonMo­bil stood at US$ 79.18, down 4.6 per­cent, while Chevron was at US$88.07, down 5.3 per­cent.

Both com­pa­nies suf­fered from a drop in oil prices from more than US$90 a bar­rel in the year-ago pe­riod to a range of US$45-60 a bar­rel through­out the quar­ter.

Fac­tors driv­ing the tum­ble in oil prices in­clude the U.S. shale pro­duc­tion boom, lower eco­nomic growth in China and the re­sis­tance of OPEC to cut crude out­put in re­sponse to the drop in prices.

Ma­jor in­dus­try fig­ures in­clud­ing BP chief ex­ec­u­tive Bob Dud­ley and ExxonMo­bil chief ex­ec­u­tive Rex Tiller­son have warned that oil prices could be de­pressed for at least a few more years.

Cut­ting Back

At ExxonMo­bil, net in­come for the sec­ond quar­ter fell by 52.3 per­cent year-over-year to US$4.2 bil­lion.

The big­gest U.S. oil com­pany’s profit-lead­ing up­stream di­vi­sion, which ex­plores for and pro­duces crude oil, dived about 75 per­cent to US$2.0 bil­lion due to lower oil prices.

How­ever, a bright spot in this busi­ness was an in­crease in up­stream out­put of 3.6 per­cent to 4.0 mil­lion bar­rels of oil-equiv­a­lent per day, in­clud­ing an 11.9 per­cent rise in oil out­put to 2.3 mil­lion bar­rels a day.

ExxonMo­bil’s re­sults were boosted by higher prof­its in both down­stream and chem­i­cals, which are based in part on crude oil as an in­put. Earn­ings in down­stream more than dou­bled to US$1.5 bil­lion, while prof­its in chem­i­cals rose 48.1 per­cent to US$1.2 bil­lion.

ExxonMo­bil spent 12.5 per­cent less through the first half of 2015 at US$16 bil­lion com­pared with the 2014 pe­riod.

But Wood­bury said ExxonMo­bil aimed to avoid lay­offs in re­sponse to low oil prices and would seek take a “very mea­sured ap­proach to man­age our head count.”

Chevron re­ported about a 90 per­cent drop in prof­its to just US$571 mil­lion fol­low­ing a large write-down on as­sets and charges re­lated to pro­ject sus­pen­sions due to a down­ward re­vi­sion in the com­pany’s long-term oil price. This drag was par­tially off­set by surg­ing earn­ings stream busi­ness.

Chevron said the 1,500 job cuts will af­fect 24 units and were part of an ef­fort to save US$1 bil­lion across its cor­po­rate-level oper­a­tions.

“If a lower price en­vi­ron­ment per­sists for longer, you will see even more sig­nif­i­cant cost sav­ings and even greater cuts in cap­i­tal,” said chief fi­nan­cial of­fi­cer Pat Yar­ring­ton on a con­fer­ence call with an­a­lysts.

Yar­ring­ton also sought to re­as­sure in­vestors of the com­pany’s com­mit­ment to a “com­pet­i­tive and grow­ing div­i­dend” af­ter some observers ques­tioned Chevron’s abil­ity to keep pay­outs high.

Chevron last an­nounced a div­i­dend hike in April 2014, when the pay­out was lifted to US$1.07 per share from US$1.00. Moves to keep the pay­out flat in 2015 so far are “pru­dent,” said Yar­ring­ton, adding that the com­pany has taken pride in de­liv­er­ing 27 straight years of div­i­dend growth.

Chevron will raise the div­i­dend “as soon as the fi­nan­cials re­ally al­low us to get there,” she said. “It is our No. 1 pri­or­ity.”


the down-


(Left) U.S. pres­i­den­tial can­di­date Sen. Bernie San­ders speaks be­fore the Na­tional Ur­ban League in Fort Laud­erdale, Florida on Fri­day, July 31.

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