Super-soft oil prices hit Chevron, Exxon very hard

The weak results from two of the world’s largest oil producers come as the energy industry is at a crossroads, trying to survive in an era of low prices, which many analysts see as the new status quo, while funding expensive growth projects crucial for long-term survival.

Exxon, the world’s largest publicly traded oil producer, shocked Wall Street as its quarterly profit missed expectations, sending its shares down as much as 4.5 per cent. Its profit from producing oil and gas fell about 85 percent to $294 million. In the United States, where Exxon is the largest natural gas producer and a major oil producer, the company lost money.

Exxon executives defended their business model, saying that they have the financial flexibility to do many things, including large acquisitions, while maintaining their dividend. The company did cut most of its share buyback program earlier this year. Standard & Poor’s downgraded the company’s vaunted “AAA” credit rating to “AA+” earlier this year, as dividends and capital expenditures were exceeding cash flow. This month Exxon said it would pay more than $2.5 billion in stock for InterOil Corp, expanding its push into the Asian liquefied natural gas market.

Chevron, the second-largest US-based oil producer, reported its largest quarterly loss in 15 years, with Chief Executive Officer John Watson acknowledging the company is in the midst of an “ongoing adjustment to a lower oil price world.” The company lost $1.47 billion in the quarter, compared with a net profit of $571 million in the year-ago period.

Still, Chevron’s results beat expectations, with analysts confident in the company’s ability to cut costs as it brings several large projects online in the next few years. The results from both companies came after disappointing results from European peers Shell and BP earlier last week.

The weak results could force the companies to reconsider their long-held policies of maintaining and growing their quarterly dividends, especially after ConocoPhillips, Marathon Oil Corp and others cut their payouts earlier this year. So far during this two-year downturn, Exxon and Chevron have held their dividends as sacrosanct, while curbing stock repurchases. 

Chevron Chief Financial Officer Pat Yarrington sidestepped questions about a potential dividend increase later this year on the company’s quarterly conference call, saying only the board of directors “fully understands the value of a dividend increase”. Jeff Woodbury, Exxon’s head of investor relations, said on a call with investors that the company was “resolute in our commitment to pay a reliable and growing dividend.”

After providing bumper profits early in the downturn as cheap crude slashed their costs, 

refiners saw the income erode this quarter on fuel oversupply. The refining industry has been 

hammered of late by growing fuel inventories and weak demand, denting its profitability. 

The oversupply has led to so-called run cuts, in which refiners trim the amount of crude they process. Exxon processed 4 per cent less crude in the quarter than a year ago and produced less petrol.