Two major oil multinationals, Exxon Mobil and Chevron suffered losses in the latest quarter as the weakened economic outlook due to the coronavirus pandemic pressures the industry to double down on cost cuts.
Exxon Mobil reported a loss of $1.1 billion in the second quarter, saying it trimmed capital spending during the period and “identified significant potential for additional reductions.” The loss is the biggest since the Exxon-Mobil merger, which was executed in 1999. Meanwhile, Chevron lost $8.3 billion in the same period, as it slashed the value of assets on expectations that commodity prices will stay down longer.
The figures incorporated a downgrade to the value of assets in Venezuela. Weak economic conditions could weigh on Chevron’s results “into the third quarter,” warned Chief Executive Mike Wirth. “The economic impact of the response to COVID-19 significantly reduced demand for our products and lowered commodity prices,” Wirth said.
“Given the uncertainties associated with economic recovery, and ample oil and gas supplies, we made a downward revision to our commodity price outlook which resulted in asset impairments and other charges.” The losses come on the heels of similar reports Thursday from Royal Dutch Shell, Total and Eni and underscore the depressed state of affairs globally for a sector tied closely to the real economy.
During the quarter, Exxon Mobil’s revenues fell by more than 50 per cent to $32.6 billion, while Chevron’s revenues fell by almost two-thirds to $13.5 billion. Exxon Mobil Chief Executive Darren Woods, who has come under scrutiny from Wall Street analysts for investing too heavily in additional petroleum capacity, said the company does not plan to raise more debt.
In light of weak commodity prices, Exxon Mobil “responded decisively by reducing near-term spending and continuing work to improve efficiency by leveraging recent reorganizations,” Woods said in a statement.
“The progress we’ve made to date gives us confidence that we will meet or exceed our cost-reduction targets for 2020 and provides a strong foundation for further efficiencies.”
Although oil prices have returned to around $40 a barrel, they were still significantly below the year-ago level in the second quarter.
That led to losses at both companies in exploration and production. Weak demand also weighed on downstream operations, although Exxon Mobil’s international refining arm was profitable due to lower expenses and improved operations compared to the 2019 period. Exxon Mobil shares fell 1.8 per cent to $41.18 in pre-market trading, while Chevron dropped 4.2 per cent to $82.75.