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Exxon Cuts Fail to Offset Output Declines


Exxon Mobil Corp. wrecked the oil industry’s perfect streak of upside profit surprises as the biggest U.S. oil explorer disclosed second-quarter results that failed to live up to analyst forecasts.

Chevron Corp., the second largest U.S. driller behind Exxon, said it earned 77 cents a share, a dime less than the average of 21 estimates relying on generally-accepted accounting principals. Excluding non-cash costs related to unidentified asset impairments and other items, the per-share result was 91 cents, on an adjusted basis.

For Exxon, the 7-cent miss from analyst estimates was largely the result of oil and gas wells underperforming expectations, while Chevron saw its refining returns falter in the quarter. Meanwhile, European drillers including Royal Dutch Shell Plc and Total SA reported they were moving into recovery mode following the worst oil-market rout in a generation, churning out cash and chopping debt.

“Tough quarter,” wrote Guy Baber, an analyst at Piper Jaffray & Co. in a note to clients. With Exxon, most of the underperformance was “concentrated in the upstream segment, and weaker-than-expected operating cash flow generation. Production was also a bit disappointing vs. our model.”

Exxon shares fell the most in almost a year, down as much as 2.6 percent to $78.76 at 9:56 a.m. That’s the lowest price for the oil giant since February 2016. Chevron rose 1.9 percent to $108.25 in New York trading.

Exxon reported second-quarter net income of $3.35 billion, or 78 cents a share, compared to $1.7 billion, or 41 cents, a year earlier, the company said in a statement. Revenue for the quarter rose 9 percent to $62.87 billion from $57.69 billion a year earlier.

Exxon’s oil and natural gas production dropped by almost 1 percent to the equivalent of 3.922 million barrels a day. Analysts had expected output to climb 1.5 percent to 4.015 million barrels, based on the average estimate. Additionally, profit from chemical plants fell 19 percent to $985 million as margins for the building blocks of plastics and other products shrank.

Catalog of Woes

For Exxon Chief Executive Officer  Darren Woods, the results add to a catalog of woes casting shadows over the world’s biggest oil company by market value. Since succeeding Rex Tillerson on Jan. 1, Woods has been faced with accusations of sanctions violations by the U.S. government, state probes into whether Exxon hid data on climate change, and long-term challenges to growing oil output.

Like the rest of the petroleum industry, Exxon responded to the deepest market crash in a generation with extensive budget cuts to conserve cash for dividends and only the most-essential drilling projects. The number of wells it drilled worldwide plunged to 514 last year from 1,210 in 2015, according to company data.

The year before the 2014 collapse, Exxon shelled out $42.5 billion to drill wells, upgrade chemical plants and build gas-export plants. That figure was cut by more than half to $19.3 billion last year and is scheduled to rise 14 percent in 2017.

Chevron Profit

Chevron, meanwhile, swung to a second-quarter profit of $1.45 billion, or 77 cents a share, compared to a loss of $1.47 billion, or 78 cents, a year earlier, the company said Friday in a statement.

‘We’re delivering higher production with lower capital and operating expenditures,” Chief Executive Officer John Watson said in the statement.

Watson, in his eighth year at the helm, has resorted to job cuts, project cancellations and billions of dollars in asset sales to cope with an industry downturn that erased $50 billion from Chevron’s market capitalization. While the company reported higher-than-expected output from wells in the quarter, turning its upstream unit from a year-ago loss to profitability, returns on refining crude into fuels shrank.

Brent crude, the international benchmark, averaged $50.79 a barrel during the period, an 8 percent increase from a year earlier, according to data compiled by Bloomberg. But since the end of the second quarter, prices have dipped as low as $46.11, prompting some explorers to slash drilling budgets this week.


8 Comments on "Exxon Cuts Fail to Offset Output Declines"

  1. bobinget on Sat, 29th Jul 2017 9:14 am 

    Like rust, depletion never sleeps.
    “BIG OIL” is also caught up with international politics. (geopolitic). For instance Exxon has been a Washington shadow government for decades.
    Now that that they are faced with the reality of actually governing (with way too much oversight)
    the biggest ‘deals’ often fall apart.

    Clarity in the oil bidness is far from helpful.
    (hence, the sexist expression: “tight hole”)

    Take Nigeria, Angola, Venezuela, please.
    (too late, China already did)

    Transparency is killing ‘big oil’. Besides these web pages there are dozens of ‘chat rooms’ populated by devoted snoops and Bots. YouTube is jam packed with ‘experts’ in demand, supply. It’s tough to sneak a tanker in and out of port or floating storage w/o someone noting.

    Wars in the past were a bonanza for oil companies.
    The last ones in Iraq and Afghanistan, millions in highly mechanized armies used fuel by the metric ton, have, like blue collar jobs, are being replaced by drones.

    Computers on wheels (EV) scare the crap out of potential long term investors. Really big projects can take six to twelve years to become profitable.

    Alternative energy, computer driven transportation
    has been taking a chunk out of ‘big oil’ for decades.
    While ICE usage continues to rise, oil consumption
    lags behind.

    Lets take up a collection for big oil, right here, right now. How about a bake sale?

  2. bobinget on Sat, 29th Jul 2017 9:34 am 

    Sorry, I can’t forget Venezuela even if almost everyone else does.

    Venezuela May Collapse, A First Among State Oil Producers

    Venezuela is getting closer to financial collapse. RBC commodities experts succinctly explain how we got here and how a vote Sunday could send the oil-producing country into further disarray.
    Dimitra DeFotis
    Updated July 28, 2017 1:41 a.m. ET

    Venezuela is the most at-risk oil producer today, and the grave economic and political crisis engulfing the country could come to a head Sunday.

    “If President Nicolas Maduro proceeds as planned with the deeply unpopular election of a new constituent assembly that will be charged with rewriting the constitution, he will likely spark violent street demonstrations on a scale not yet seen and hasten the country’s economic implosion by triggering a new wave of crippling sectoral sanctions,” writes Helima Croft, global head of commodity strategy at RBC Capital Markets.
    Croft, who worked in Africa for the State Department, along with colleagues Michael Tran and Christopher Louney, adds that Venezuela appears “poised to earn the dubious distinction of being the first sovereign oil producer to fully fail.” RBC’s commodities team adds:

    ” … The statistics are staggering. By the end of the 2017, the Venezuelan economy will likely have shrunk by 30% in three years. The IMF forecasts that inflation will average 720% this year and top 2,000% in 2018. Half of the population is living in extreme poverty and health officials are even starting to warn of famine if current trends continue, according to the International Crisis Group. Three months of daily demonstrations and strikes have left more than a hundred dead and thousands injured. Thousands more are languishing in jail. Oil has been a clear casualty of the crisis, with production trending steadily downward due to the state oil company PDVSA’s [Petroleos de Venezuela] inability to obtain diluents, maintain health and safety standards at facilities, and pay service companies and employees …
    With the country’s foreign reserves recently having fallen below $10 billion, PDVSA will be extremely hard pressed to avoid a disorderly default in the autumn or continue any semblance of regular salary payments. Such a scenario, in turn, could produce the types of large-scale production losses last seen in the 2002 oil strike …
    Amidst this chaos, the country will likely find itself at a critical crossroads on Sunday. Venezuela could be subject to crippling new economic sanctions if President Maduro proceeds [with election plans] … The Trump administration has drawn something of a thin red line around this event and is reportedly giving serious consideration to deploying the type of sweeping sectoral sanctions used to induce Iran to curb its nuclear ambitions. If this comes to pass, Venezuela will face economic ruin unless China rides to the rescue with a massive assistance package. Such a sanctions scenario would have serious implications for the oil sector. Faced with a severe shortage of hard currency, PDVSA will be extremely hard pressed to avoid a disorderly default in the autumn or to continue any semblance of regular salary payments, in turn raising the specter of a return to the large-scale production losses last seen in the early 2000s.”

  3. bobinget on Sat, 29th Jul 2017 9:40 am 

    As I’ve been saying. This entire opera ballet was choreographed by China and Russia.
    President Trump, not a fan of either, did not attend.
    Dare we?

  4. Davy on Sat, 29th Jul 2017 10:34 am 

    “If this comes to pass, Venezuela will face economic ruin unless China rides to the rescue with a massive assistance package.”

    Bob, the Chinese have already sunk billions into Venezuela. They are likely to the point of having no more interest in throwing good money after bad. China is set to take a huge haircut on their Venezuelan investment making all that cheap oil they purchased now extremely high priced. I can’t figure out why you keep alluding to China as the white night to the recuse. What is even more bizarre is your assertion that they are somehow going to militarily intervene. Bob, explain how China is going to intervene and with what? Do you think the Venezuelans are going to allow them in? You do realize Venezuela has a large military. What world do you live in? You must be in makatiland because it is not the real world.

  5. bobinget on Sat, 29th Jul 2017 1:48 pm 

    Apparently Davy can’t see one of the best real estate buys since Alaska. One hundred Billion owed to China and Russia is chump change. The world’s biggest stash of PROVEN (crude)RESERVES are up for grabs. China and Russia, doing the grabbing.

    Davy, with no help, spotted the most important sentence in the article.

    Once Maduro signs the deal he ‘can’t refuse’ China,
    not Russia or the US, swoop in with container ships
    loaded with everything from Chinese toothpaste to Chinese toilet paper to Chinese prescription meds to Chinese take-out.

  6. Davy on Sat, 29th Jul 2017 2:22 pm 

    Bob, maybe you don’t realize Maduro may be history soon and the next ruling power could tell China to take a hike. It is China that has supported a controversial regime and that regime is likely on the way out. Bob, the country is broke so China is going to take a hair cut and there is little they can do about that. You know blood from a turnip thing. China has no military projection abilities in that part of the world so they can’t enforce their rights except through the normal court process everyone else will follow. The Venezuelan military is a strong force that will prevent China from any force projection.

  7. Sissyfuss on Sat, 29th Jul 2017 3:26 pm 

    My question is to the Rockmon. What can the Chinese do with the extra heavy oil of Venezuela? Don’t they need a lighter oil to mix it with ala our light tight?

  8. twocats on Sat, 29th Jul 2017 5:40 pm 

    companies are being rewarded for slashing jobs, cancelling projects, selling assets and reducing exploration. that’s all you need to know about whether it is profitable to pump and expand as a nation/oil company at sub-50. It may be profitable to pump, but not to both pump and expand. thus contraction or operate at a loss or a reduced profit at best.

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