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HOUSTON: Exxon Mobil Corp and Chevron Corp are holding back oil production as the top two US producers plan combined global closings of 800,000 barrels per day in response to falling oil prices and fuel demand.
Both companies on Friday described deep cuts in investments in the oil shale basin, the main US oil field. USA, where growth in recent years has made the United States the world’s leading oil producer and a net exporter for the first time in decades. Each of them announced global closings of up to 400,000 barrels per day (bpd) this quarter due to blockades to combat the coronavirus pandemic.
Exxon and Chevron have been neglecting Permian drilling rigs since the market began to collapse in March. US crude oil prices fell nearly 70% this year to less than $ 20 a barrel, and traded in negative territory on April 20 for the first time.
Oil and gas production at both US producers increased in the first quarter with companies competing to produce 1 million barrels per day in the Permian. Then demand for fuel sank nearly a third due to travel and business blockades, while an avalanche of Russian and Saudi oil hit the market when production cuts were abandoned.
“We intend to return activity to the Permian when we see prices recover,” Chevron chief financial officer Pierre Breber said in an interview.
The two big oil companies have spent a lot in the last two years to expand in the Permian. Shale production can be done faster than in deep water and other oil exploration projects, but it requires near-constant drilling to maintain production.
Exxon’s biggest cuts will come in the Permian, “where short-cycle investments adjust most easily,” Exxon Chief Executive Darren Woods said.
He added that because shale wells produce large volumes at first and then decrease rapidly, it is “long-term beneficial” to ensure “that we are bringing those high production rates to a market that is more conducive.” Exxon will ditch 75% of its Permian drill rigs, keeping 15 running.
The company posted a loss of $ 610 million in the first quarter, its first quarterly loss in three decades, in an inventory reduction of nearly $ 3 billion reflecting lower margins and prices. Chevron posted a $ 3.6 billion gain in asset sales and better refining results, and also said it would further reduce spending this year.
(To view a chart on Exxon’s earnings, click here: https://fingfx.thomsonreuters.com/gfx/editorcharts/ygdpzydkyvw/index.html)
Both companies will cut budgets by 30% this year. Chevron cut its capital spending budget to $ 14 billion and Exxon set spending for 2020 at $ 23 billion, the lowest in four years.
While its results exceeded low Wall Street estimates, Exxon’s shares fell 7% to $ 43.14, while Chevron fell 2.8% to $ 89.44.
Chevron’s additional spending cuts will help it pay its dividend and make it “a defensive power reserve and a relatively safe haven in very stormy seas,” said Jennifer Rowland, analyst at Edward Jones.
Exxon’s balance sheet “is strong enough to withstand the current environment,” but it needs oil prices of around $ 75 a barrel this year to break even against around $ 50 on average for its peers, he said. Biraj Borkhataria of RBC Europe Limited.
US crude oil futures have rebounded a bit since they settled in negative territory on April 20, but the current price of around $ 19 a barrel remains below the cost of production for many. International oil prices are around $ 26 per barrel.
Both Chevron and Exxon maintained their quarterly dividends.
Other big oil companies are also cutting investments and looking for ways to save cash. Royal Dutch Shell cut its dividends for the first time since World War II and reported that first-quarter earnings were down almost half compared to the previous year. BP Plc’s first-quarter earnings fell two-thirds and its debt rose to its highest level on record. – Reuters
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