Energy: Low oil prices hit Exxon, Chevron in balance sheet
DALLAS >> Cheaper oil is leading to the lowest summer gasoline prices in years, and it is causing heartburn for oil companies and their shareholders.
On Friday, Exxon Mobil Corp. reported its smallest quarterly profit in nearly 17 years — although it still earned $1.7 billion. Chevron Corp. lost money.
The reports from the two biggest U.S. oil companies followed weak second-quarter results from BP and Royal Dutch Shell.
Exxon Chairman and CEO Rex Tillerson said the results "reflect a volatile industry environment."
The companies have slashed spending on exploration and cut budgets to offset lower prices, but that has yet to create a sustained rebound in oil prices.
U.S. crude rallied from below $30 a barrel in February to above $50 in early June. But more recently oil prices have faded again, with crude inventories remaining stubbornly high and the global economy mired in a funk. This week, U.S. oil hit a three-month low.
Production of oil in U.S. shale fields has fallen, and wildfires in Canada and unrest in Nigeria have also interrupted oil flows at times this year. Still, major players like Saudi Arabia continue to pump away.
The outlook is good for drivers, bad for anyone working in, or investing in, the energy sector. The U.S. Energy Information Administration forecasts that oil will average $43.57 this year and $52.15 next year.
"Oil prices shot up to $50 sooner than we all thought," said Brian Youngberg, an analyst with Edward Jones. "In the near term they could fall back a little farther, but I'm confident oil prices will be in the $50s for most of 2017."
For consumers, that's like money in the bank, at least compared with two years ago. The average U.S. price for a gallon of regular gasoline stood at $2.14 on Friday, the lowest price since April, according to auto club AAA.
Gasoline prices are skidding because of high inventories. The decline in pump prices defies the usual pattern of higher prices during summer, when people drive more. Motorists are filling up on the cheapest July gasoline in 12 years, the auto club says.
Exxon said its profit fell because of lower oil and gas prices and weaker margins from its refining operations, which had been one of the company's strengths.
"When crude prices collapsed, (refiners) decided to make as much gasoline as they could," said Stewart Glickman, an analyst for S&P Global Market Intelligence. While those inventories have come off their highs, he said, remain near the top of the five-year average.
Exxon's net income tumbled 59 percent from a year ago, and also fell below the first-quarter earnings of $1.8 billion. It was the Texas company's smallest profit since $1.5 billion in the third quarter of 1999.
The profit came to 41 cents per share, well below the 64 cents per share forecast from analysts surveyed by FactSet. Exxon did not exclude any one-time costs from the per share calculation.
Revenue fell 22 percent, to $57.69 billion.
Chevron, the second-biggest U.S. oil company, reported a loss of $1.47 billion, a reversal from a year-ago profit of $571 million. The results were dragged down by write-downs in its exploration and production business. The California company said its adjusted profit was 35 cents per share, 3 cents better than analysts predicted.
Chairman and CEO John Watson said his company was in the midst of "our ongoing adjustment to a lower oil-price world."
Revenue dropped 27 percent to $29.28 billion. The company got $36 a barrel for oil, down from $50 a year earlier, and natural gas also was cheaper. Production declined 3 percent.
Earlier this week, BP PLC reported a $2.25 billion loss in the second quarter, dragged down by charges related to the 2010 Gulf of Mexico oil spill. Royal Dutch Shell PLC said its profit fell by 93 percent, and France's Total reported that profit fell 30 percent .
Oil companies are slashing billions in capital and exploration spending. Analysts say that eventually such reductions will translate into lower production, smaller supplies and higher prices for oil.
In midday trading, Exxon shares fell $1.72, or 1.9 percent, to $88.48 after falling at one point to $86.12, their lowest point since April 20. Chevron share were up 8 cents to $101.87.
TALK TO US
If you'd like to leave a comment (or a tip or a question) about this story with the editors, please email us. We also welcome letters to the editor for publication; you can do that by filling out our letters form and submitting it to the newsroom.