Exxon and Chevron Post Huge Losses Amidst Global Crude Price Doldrum

Wall Street expected Exxon Mobil Corp. and Chevron Corp. earnings to be bad, but not this bad.

America’s biggest energy companies delivered their worst set of quarterly results of the modern era, weighed down by the slump in oil prices and the global collapse in demand due to Covid-19.

But even so, the extent of what was disclosed Friday was at certain points almost breathtaking. Chevron announced multibillion dollar writedowns on its assets for the second time in a year, said it will cut the equivalent of 5% of its worldwide output during the current quarter and backtracked on plans to massively ramp up production from its prized Permian Basin shale holdings.

Exxon Reports Losses

Exxon said on Friday that it lost $1.1 billion during the second quarter amid “global oversupply and COVID-related demand impacts.” It was the oil giant’s second straight quarter of losses.

The company lost 70 cents per share on an adjusted basis, while revenue came in at $32.61 billion. In the same quarter a year ago, Exxon earned 73 cents per share, on revenue of $69.09 billion.

Analysts expected the company to report a loss of 61 cents per share for the second quarter, and revenue of $38.157 billion, according to estimates from Refinitiv.

After trading in the red for much of the day, shares of Exxon rallied into the close and finished the session 0.5% higher.

Statement From The CEO

“The global pandemic and oversupply conditions significantly impacted our second quarter financial results with lower prices, margins, and sales volumes,” said Darren Woods, Exxon CEO, in a statement.

“We have increased debt to a level we feel is appropriate to provide liquidity, given market uncertainties. Based on current projections, we do not plan to take on any additional debt,” he added.

Oil-equivalent production fell 7% year-over-year, and the company said average prices for crude oil and natural gas were “significantly lower” than in the same quarter a year earlier.

West Texas Intermediate, the U.S. oil benchmark, is down more than 30% this year, which has forced energy companies to slash spending and in some cases, cut their dividend.

But ahead of its quarterly results, Exxon once again reiterated that it has no plans to cut its dividend. The third quarter dividend will be 87 cents, according to a company statement released Wednesday.

Chevron’s Shares Plummet

Chevron’s shares dropped as much as 5.5% while Exxon fell by as much as 2.3%, in marked contrast to Friday’s rally by Big Tech following a set of bumper earnings from the likes of Facebook Inc. and Apple Inc. Energy is the worst investment in the S&P 500 Index this year.

The coronavirus crisis has decimated demand for oil in 2020. Exxon lost $1.1 billion, the company’s second straight quarterly loss, while Chevron posted a loss of $8.3 billion.

Crude prices have plunged more than 25% this year and even briefly fell below $0 at one point. Oil prices have rebounded lately, however, and they are now hovering around $40 a barrel.Still, the CEOs of both energy giants didn’t sound overly optimistic about the future.

Statement From The CEO

“The past few months have presented unique challenges,” said Chevron chairman and CEO Michael Wirth. “The economic impact of the response to Covid-19 significantly reduced demand for our products and lowered commodity prices.”

Chevron added in its statement that “while demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels,” and results will likely remain “depressed” in the third quarter.

Expert Opinions

Leverage has gone to levels not seen in recent downturns and management’s comments that it doesn’t plan to take on more leverage could indicate that a protracted recovery would force the company to cut spending further, or even its vaunted dividend.

— Fernando Valle, BI analyst

Without the massive trading operations that shielded European oil explorers such as Royal Dutch Shell Plc and Total SE from losses, Chevron was exposed to the full force of this year’s oil price rout. Notably, Exxon’s nascent trading foray “experienced unfavorable mark-to-market derivative impacts,” the company said.