Crude rising, but times still hard

Oil giants report further losses even as prices start to head up

Crude prices are on the rise again, but even the biggest U.S. oil companies remain in turmoil, losing money on key operations, cutting jobs, and adding to the carnage of an oil bust that is pushing smaller companies into bankruptcy.

Chevron Corp., which has about 8,000 employees in Houston, on Friday reported just its second quarterly loss in a decade, signalling another round of layoffs after cutting 4,000 jobs during the two years since the downturn. Exxon Mobil, which has more than 11,000 local workers, reported that its profits in the first quarter fell more than 60 percent from a year ago.

The disappointing earnings were largely the result of substantial losses in U.S. operations. The two oil giants said they lost a combined $1.7 billion drilling in the United States, particularly in shale formations in Texas and North Dakota. Like their smaller rivals, Exxon Mobil and Chevron have sidelined scores of unprofitable rigs.

“It’s definitely quiet out there” in the oil fields, said Phillip Blower, a land manager at oil producer Whitmar Exploration Co. in Denver.

And it could get quieter. Ultra-Petroleum Corp., a small Houston driller, warned Friday there’s a “substantial risk” it may soon have to file for Chapter 11 bankruptcy as it tries to negotiate with creditors. If Ultra Petroleum does file, it would join more than 60 other U.S. and Canadian companies that have gone into bankruptcy.

“None of the shale plays are profitable,” said Scott Pope, a geologist at PNP Operating Co., an oil firm in San Antonio. “We’ve got a lot companies facing bankruptcy, and almost all of them are in serious trouble.”

The trouble began in mid-2014, when oil prices, which topped $100 a barrel, started to slide in the face of a global oil glut. The so-called shale revolution, which opened vast new sources of oil in the United States, lifted economies and made overnight millionaires in Texas, Oklahoma, North Dakota and elsewhere. But as it pumped more and more oil into an oversupplied market, domestic oil prices fell as low as $26 a barrel earlier this year, down 75 percent from its peak in 2014.

Slow recovery in store

On Friday, U.S. crude settled down 11 cents at $45.92 a barrel on the New York Mercantile Exchange. But the price has jumped 29 percent since the beginning of April.

So far, oil companies haven’t done much to capitalize on the market rally, and they aren’t likely to move drilling rigs back to the oil patch quickly if prices level off. That’s especially true of the big oil companies like Exxon Mobil and Chevron that make the bulk of their oil investments overseas, in offshore regions like Brazil and West Africa.

The financial stress of the downturn has been more intense for shale drillers, But large oil companies, saddled with multiyear projects that cost billions, may not be able to spring to life as quickly as their smaller rivals once the oil market recovers.

“They’re not just going to turn back around and start spending money,” said Imran Khan, a senior analyst at Wood Mackenzie.

Shale drilling on U.S. land is expensive in its own right, but it’s a much faster than the bulky deep-water projects that big oil companies have pursued over the past few years. Chevron has begun to shift much of its capital spending to West Texas, where it has some 4,000 wells that could make a 10 percent profit at $50-a-barrel oil.

Gulf is ‘not off the table’

But analysts say Chevron and Exxon Mobil would still probably lag smaller drillers in boosting production when higher crude prices arrive.

After the five-year oil boom, U.S. crude production is slipping, and analysts expect the decline in domestic oil supplies to lift crude prices further. But analysts say it could be years before the oil industry returns in force to the vast ocean depths. Exploration in the Gulf is expected to be down 20 to 35 percent this year, according to energy research firm Wood Mackenzie.

“They may ramp it down and ramp it up given the business conditions at the time, but it is not off the table,” said Michelle Foss, an energy economist at the University of Texas. “It’s just the timing of investment.”

In addition to low crude prices, Exxon Mobil and Chevron said their first quarter earnings were hurt additionally by lower income from their refining operations after the falling price of refined products cut their profit margins.

Overall, Exxon Mobil’s revenue sank 27 percent to $48.7 billion and its profits fell 63 percent to $1.8 billion in the first quarter. Chevron said lost $750 million. Its total sales dropped 32 percent to $23.6 billion.