(Bloomberg) – Exxon Mobil Corp. and Chevron Corp. recorded the worst losses in a generation after the pandemic and a combined global excess of crude to hit almost all parts of their businesses.
Exxon’s loss of $ 1.1 billion in the second quarter was the deepest in the company’s modern history. A collapse in crude prices bled the company’s production division, while Covid-19 blockades reduced demand for everything from jet fuel to plastic wrap, hampering the company’s chemical and refining units. company.
Chevron posted its weakest performance in at least three decades and warned that the global pandemic wreaking havoc on energy markets may continue to drag profits. The explorer plans to reduce the equivalent of 5% of its world production during the current quarter and is backing down on its plans to massively increase production from its precious Permian Basin reserves.
Oil has become the worst performing sector in the US stock markets, as a confluence of economic, political and structural threats come together to jeopardize the foundations of the oil industry. Radical layoffs, budget cuts and project cancellations have not been enough to halt the decline of the industry, as fleeing investors made energy the worst investment in the S&P 500 Index this year.
Without the massive trade operations that protected European oil explorers, such as Royal Dutch Shell Plc and Total SE, from loss, Chevron was exposed to the full force of this year’s oil price drop. In particular, Exxon’s fledgling commercial foray “experienced unfavorable impacts of derivatives on the market,” the company said.
Exxon generated zero cash from operating activities during the quarter, according to a statement Friday.
“I was looking at the press release and I thought, ‘Is that a typo?'” Said Jennifer Rowland, an analyst at Edward D. Jones & Co. in St. Louis. “It’s amazing for a company the size of Exxon.”
Exxon dropped 13 cents to $ 41.74 at 9:42 a.m. in New York after a previous drop of up to 2.3%. Chevron decreased 3.7%.
The problems of the American super majors are emblematic of the broader threats that threaten the oil industry in what is becoming the deepest crisis in its 161-year history. International titans that made record profits during the first decade of the century have now been reduced to widespread job cuts, belt tightening, and large loans to cover dividends and other disbursements.
Cost cuts
Exxon, which earlier this year began making efforts to reduce its workforce in the United States, said it is developing plans to further reduce operating expenses, without providing details. The company’s loss of 26 cents a share was better than analysts’ average loss of 64 cents in a Bloomberg survey.
The worst oil collapse came at a vulnerable time for Exxon because it had just embarked on an aggressive multi-million dollar rebuild program. After slashing $ 10 billion in capital spending and freezing dividends, CEO Darren Woods may be running out of levers to pull.
Woods said Friday that according to current projections, the company will not take on any additional debt. The promise appears to be a strategic move and a defensive move to counter investors who said it would test the limits of acceptable leverage levels for years to come.
What Bloomberg’s Intelligence Says
Leverage has reached levels not seen in recent recessions, and management’s comments that it does not plan to take more leverage could indicate that a prolonged recovery would force the company to further reduce spending, or even its flaunted dividend.
– Fernando Valle, BI analyst
Chevron completely erased the value of its Venezuela operations from its books, which totaled $ 2.6 billion, after they were effectively frozen by United States sanctions, and wrote down another $ 1.8 billion in assets due to prices. lowest commodity.
Even removing the impediments, Chevron’s adjusted loss was $ 3 billion, more than double the average analyst estimate in a Bloomberg survey and the deepest since at least 1989.
“While demand and prices for commodities have shown signs of recovery, they have not returned to pre-pandemic levels, and financial results may remain depressed until the third quarter of 2020,” Chevron said in a statement. Friday.
Putting Venezuela aside and low prices, Chevron also had a one-time fee of $ 780 million related to its plan to cut 6,000 jobs, or about 13%, from its workforce.
Despite the red ink, Chevron CEO Mike Wirth saw an opportunity for expansion amid defeat: the $ 5 billion acquisition of Noble Energy Inc., announced less than two weeks ago. The deal has a minuscule premium and clogs holes in Chevron’s long-term portfolio, analysts said.
(Update stock performance in the eighth paragraph.)
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