Big Oil earnings regain some muscle
Results at Exxon Mobil and Chevron give hope to Houston-based drillers as two giants pay down their debts
Buoyed by rising oil prices, earnings for Exxon Mobil and Chevron surged in the first three months of the year, a promising milestone for the scores of Houston companies that have begun drilling for oil and praying for a lasting recovery.
For the first time in nearly three years, the cash flowing from Exxon Mobil’s massive oil field and refinery operations from the Gulf Coast to Iraq paid for both shareholder dividends and its investments in new and existing projects, meaning it didn’t have to dip into reserves, borrow or sell assets to cover the costs. Chevron pumped more oil and swung back into the black as crude prices broke above $50 a barrel, doubling its level since last year’s first quarter, the worst of a two-year oil bust that forced thousands of Texans out of work.
The two biggest U.S. oil companies whittled down debt, touted new ventures in places like Guyana, Mozambique and West Texas, supplemented their income by selling off oil and gas properties — and regained some Big Oil swagger.
“We’re really starting to
see all of that cost-cutting progress and new projects flow through to the bottom line now,” said Tom Ellacott, an analyst at energy research firm Wood Mackenzie.
On Friday morning, Irving-based Exxon Mobil said it collected $4 billion in profit in the first quarter, more than doubling its income in the same period last year, while its revenue climbed nearly a third to $63.3 billion.
Exxon Mobil’s oil production business earned $2.3 billion, up from a $76 million loss in the same period last year. It spent about $4.2 billion in capital expenditures, down from $5.1 billion the same time last year, while shareholder dividends cost $3.1 billion. Exxon Mobil pumped 4.2 million barrels of oil equivalent a day, down 4 percent from a year ago. It made $8.2 billion in income directly from its oil and gas operations, and sold off $700 million in assets.
Chevron, based in San Ramon, Calif., banked $2.7 billion in net income — a year after it posted a $725 million loss — and its revenue rose 42 percent to $33.4 billion. It posted $1.5 billion profits from oil production the first quarter, compared with $1.5 billion in losses same period in 2016.
Chevron pumped 2.68 million barrels a day, up slightly, and earned $3.9 billion from all its operations, including $1 billion in asset sales.
“The first quarter was a good start,” Chevron CFO Pat Yarrington told investors. She said she expects the company’s cash flow to be sufficient to cover the cost of dividends sometime this year.
Brian Youngberg, an analyst at Edward Jones in St. Louis, said 2017 will be a “transition year” for Big Oil. Companies will profit from higher oil prices this year and see a stronger recovery next year, unless oil prices crash again.
Despite fatter profit margins, Exxon Mobil warned investors against over-exuberance, saying it is still cautious about oil prices, given how quickly U.S. drillers have pumped oil from major shale plays.
Since Saudi Arabia and its OPEC partners slashed production, oil output outside the cartel has taken off, and during the oil boom, U.S. shale drillers were able to ramp up oil production by 800,000 to 1 million barrels a day in a single year, Exxon Mobil spokesman Jeff Woodbury said. He stressed “the importance of making sure we’re very thoughtful about the nearer and longerterm market.”
On Friday, the U.S. rig count increased by 13 to 870, more than double its level last May. Exxon Mobil said it brought its U.S. drilling rig fleet up to 18 from 13 since the fourth quarter, and plans to start putting more rigs in the Delaware Basin in New Mexico and West Texas, where it recently purchased private companies that own 275,000 net acres for $6.6 billion.
Chevron, meanwhile, operates a dozen rigs in the Permian Basin and plans to increase that number to 20 by the end of 2018. Its oil production there rose 30 percent to 150,000 barrels a day over the past year.
Still, analysts said, the companies still haven’t fully recovered from the punishing downturn.
“The earnings are only really back to the level they were generating in 2015,” said Lysle Brinker, an analyst at IHS Markit.
The big oil companies are buying assets and making progress on projects, too. Exxon Mobil said it has agreed to buy a quarter stake in a deepwater natural gas field off Mozambique to supply a major liquefied natural gas project there. Woodbury said the company plans to make a final investment decision on a major deepwater project in Guyana by the middle of the year. Chevron, meanwhile, is working on massive LNG projects in Australia.
Oil explorers weren’t the only energy companies to report improved earnings on Friday. Refinery operator Phillips 66, based in Houston, collected $535 million in profit in the first quarter, up from $163 million in the fourth quarter of 2016. The company attributed some of the gain to its new liquefied petroleum gas export terminal in Freeport, which came online during the fourth quarter and allows the company to ship propane and butane worldwide.
Meanwhile, petrochemical giant LyondellBasell Industries posted a $797 million quarterly profit despite extra maintenance downtime, including a March fire at its Houston refinery. The Houston chemical company saw its profit fall 23 percent from the same quarter last year, but it grew 4 percent from the final quarter of 2016.