ExxonMobil And Chevron Post Record Losses In Oil Price Rout

The COVID-19 pandemic drove oil juggernaut ExxonMobil
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to a $1.1 billion loss in the second quarter — its largest ever — but hasn’t budged its long-term view that the world needs more oil and gas.

Exxon is in the midst of an aggressive cost-cutting campaign, saying it would continue curtailments of crude oil production into the third quarter of this year, and that in addition to large reductions in capital spending it might make additional workforce and management reductions. But on an earnings call this morning, executives characterized reduced capital spending plans as short-term only.

“The fundamentals have not changed,” said Neil Chapman, Exxon’s senior vice president.

Fellow North American oil titan Chevron
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reported an even larger loss of $8.3 billion in the second quarter and wrote down $5.7 billion in oil and gas assets, with more than half of the write-downs related to sanctions-hit Venezuela. In a call this morning, Chevron executives suggested that the pandemic had caused it to lower its long-term oil price outlook, leaving it with little choice but to revise down the value of its assets.

Chevron’s quarterly loss — driven largely by the write-downs but also by a plan to ax 6,000 jobs — was its worst in at least 20 years. Yet the company warned that it has not yet weathered the storm. “Financial results may continue to be depressed into the third quarter 2020,” Chevron said in a statement.

Investors had expected better news. Exxon’s stock price fell 3.5% and is now more than 40% below where it started the year. Chevron’s shares fell similarly; the company’s stock is down more than 30% since the start of the year.

Exxon and Chevron’s major losses followed grim results earlier this week from European oil majors Shell and Total as well as several independent U.S. producers, including ConocoPhillips
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and Apache Corporation
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. The COVID-19 pandemic has drastically undercut demand for petroleum products such as gasoline and jet fuel, forcing oil and gas companies to aggressively cut costs.

The devastation has proved more damaging for fossil fuel companies than other parts of the energy industry and spurred calls to invest more heavily in renewables. But that has not stayed Exxon’s view that crude oil demand will remain robust for many decades to come. Although it is making steep short-term capital spending cuts, including 2021 capital spending levels potentially even below even 2020, its long-term capital allocation plans remained unchanged, it said.

“The population will continue to grow, economies will continue to grow,” said Chapman, the Exxon senior vice president, reiterating the familiar refrain that guides Exxon’s overall outlook. “There is a need for hydrocarbons to come into the market and people to invest in hydrocarbons to meet that demand.”

Chapman also channeled a relentless focus on reducing costs and finding efficiencies. “You only win in this business if you have the lowest costs.”

Exxon’s second-quarter capital and exploration spending sunk to $5.3 billion in the quarter, from $8.1 billion in the second quarter of 2019. It expects to reduce its oil rig count in the Permian Basin of the U.S., which it had already cut by half to 30 in the second quarter, by half again by the end of the year. Its Permian operations account for around 300,000 b/d of its output.

Exxon has come under pressure to write off the value of some of its assets, following in the footsteps of Chevron and others. Aside from Chevron, this week Shell wrote down billions on assets mostly in the carbon-intensive oil sands in Canada. But so far Exxon has resisted those calls. Asked about the possibility of write-downs in the call, including in Canadian oil sands assets, Chapman said that the company continually evaluates the value of its assets but that it had no imminent plans to write off any assets.

Long the world’s second-largest oil company after Saudi Arabia’s state-owned behemoth Saudi Aramco, Exxon fell into third place last week when India’s refining giant Reliance Industries, propelled by its growing investments in digital infrastructure and telecoms, overtook it in market value.