Exxon, Chevron report massive losses
Quarterly results are worst in recent history amid low prices, decline in demand for oil
Exxon Mobil and Chevron, the nation’s biggest oil companies, suffered their deepest losses in recent history during the second quarter as the coronavirus pandemic crushed demand for oil and sent prices to historic lows.
Exxon lost $1.1 billion, its first consecutive quarterly loss in more than 30 years. It lost $610 million in the first quarter.
Losses were equally widespread at rival Chevron, which lost $8.3 billion, suffering its worst performance in at least three decades. It had a $3.6 billion profit in the first quarter.
The oil supermajors Friday reported losses across their upstream, downstream and petrochemicals businesses as demand for crude and petroleum products, such as gasoline, jet fuel and motor oil, plunged during the global coronavirus pandemic. The ensuing economic fallout forced oil producers throughout the industry to slash spending, halt drilling projects and lay off thousands of employees.
In Houston, Exxon employs nearly 16,000 employees, and Chevron employs about 7,000, according to a Houston Chronicle survey.
“We’ve never seen a decline in this magnitude and pace before, even relative to the historic periods of demand volatility following the global financial crisis and as far back as the 1970s oil and energy crisis,” Neil Chapman, president of Exxon’s chemicals division, told analysts in a conference call Friday.
Chevron’s second quarter losses reflected not only steep drops in production and refining but also a $1.8 billion write-down of the company’s assets in West Texas and Venezuela. Chevron’s assets in Venezuela were mothballed in April after it was banned from drilling or transporting oil in the South American country by the Trump administration, which has been cracking down on money going to the socialist government.
The company’s losses also were compounded by $780 million in severance payouts to laidoff employees. Chevron this year plans to lay off about 7,000 employees because of the economic fallout from the pandemic.
Exxon, on the other hand, was the only supermajor that did not write down the value of its assets to reflect the market downturn. Without a $1.9 billion improvement in refining inventory valuations, Exxon said, it would have suffered a $3 billion loss during
the second quarter.
Exxon and Chevron responded swiftly to the oil bust.
Chevron cut its capital budget by 40 percent, reduced oil and gas production by 150,000 barrels per day and lowered its refinery output to 55 percent of capacity. Exxon slashed its operating expenses by 15 percent, reduced its oil and gas production by about 330,000 barrels per day and cut spending on new drilling by 30 percent to $23 billion. It is now looking to cut its capital budget to $19 billion by the end of the year.
As crude prices climbed above $40 a barrel, Exxon restored the majority of its production from its shale plays in July. However, the company said it would keep production cuts of 200,000 barrels per day on average in the third quarter as demand recovery remains tenuous with rising coronavirus cases in the U.S.
In West Texas’ Permian Basin, the nation’s top-producing shale play, Exxon expects to halve its rig count to 10 to 15 by the end of the year. Similarly, Chevron said it will hold off on ramping up oil and gas production in the Permian Basin until economic conditions improve.
Chevron and Exxon said they plan to maintain shareholder dividends and prioritize projects that will help them maintain crude production once prices recover.
Yet Chevron last month snapped up rival Noble Energy, a Houston-based independent with attractive assets in the Permian Basin, the DJ Basin of Colorado and the eastern Mediterranean Sea. The $13 billion deal, pending approval from Noble Energy shareholders and regulatory officials, is expected to close this year.
Chevron said it is preparing for a prolonged recovery in oil prices, pushing the company to become more efficient and make money at $40 a barrel.
“We’re planning for lower for longer,” said Pierre Breber, Chevron’s chief financial officer. “It’s a very uncertain environment. I hope the second quarter was the bottom. It sure feels like it.”