The companies posted second-quarter losses of $ 8.3 billion and $ 1.1 billion respectively – down from profits of $ 4 billion and $ 3.1 billion each for the same period l ‘last year – as the price drop triggered by the pandemic and the Saudi-Russian price war reduced their incomes. .
Exxon’s loss was its second in as many quarters, shattering decades of consecutive quarterly profits. Chevron has been the deepest in recent history.
“The destruction of demand in the second quarter was unprecedented in the history of modern oil markets,” Neil Chapman, senior vice president of Exxon, told analysts on an investor call.
“To put it in context, absolute demand has fallen to levels we haven’t seen in almost 20 years,” he said. “We have never seen a decline of this magnitude in pace before, even compared to historical periods of demand volatility after the global financial crisis and as far back as the oil and energy crisis of the 1970s.
Chevron’s results were significantly worse than analysts had expected, hitting its shares by more than 4%. Exxon, having previously warned investors to expect a bad quarterly filing, has exceeded expectations. Its shares, however, fell about 1 percent at the start of trading.
“The past few months have presented unique challenges,” said Mike Wirth, general manager of Chevron. “The economic impact of the response to Covid-19 has dramatically reduced demand for our products and lowered commodity prices.”
Their huge losses follow windfall profits reported by tech giants on Thursday, underscoring the weakness of the U.S. oil and gas sector in the face of the coronavirus pandemic and other changes in the global economy.
Tech stocks now account for 27% of the S&P 500 market cap. Once dominant energy companies have fallen behind.
“Energy was once the biggest sector in the S&P 500,” said Matt Stucky, portfolio manager at Northwestern Mutual, based in Milwaukee. “When we sit here today, it’s less than 3%. . . What will drive the market trends are some of the biggest tech companies. ”
The poor results of the American supermajors also contrasted with the better performances of European competitors, where the commercial arms of Total and Shell helped keep the overall results of the second quarter in the dark.
However, like their European counterparts, the upstream segments of the two U.S. companies were hit hard, with Chevron posting a loss of more than $ 6 billion compared to a profit of $ 3.5 billion in the same quarter. last year. Exxon’s international upstream activities suffered a loss of $ 1.7 billion compared to a gain of $ 3.3 billion a year earlier.
The two largest publicly traded oil producers in the world have also reported a drop in production, in part due to mandatory supply cuts in OPEC countries as well as their own production cuts to states. – United when prices collapsed earlier this year.
Like other oil producers, Chevron and Exxon have sought to cut costs to deal with the recession. Exxon succeeded in reducing capital and exploration spending by about $ 2 billion from the first quarter, and said it “identified significant potential for further cuts.”
Chevron said its capital spending was on track to meet the annual target of $ 14 billion, 20% below its original plan for the year. Operating costs have fallen only modestly, excluding $ 1 billion in severance pay.
Chevron also said it completely wrote off the $ 2.6 billion valuation of its assets in Venezuela, where the “global political outlook” left it uncertain whether it could recoup its investment. The company’s total net non-cash expense was $ 5.2 billion, in part due to significant “revisions” to its outlook for commodity prices.
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Analysts noted that the two companies differed over how they were positioned to handle increased volatility, with Exxon’s dividend likely to come under pressure.
“Chevron came out of the worst quarter in recent history with a strong balance sheet and well positioned to support its dividend even as the macroeconomic environment remains challenging,” said Jennifer Rowland, analyst at Edward Jones.
“Exxon, on the other hand, has been in debt for over a year and is probably short of the capacity to continue to do so without compromising the strength of its balance sheet, which is a gem of the company,” he said. she declared. “This calls into question the length of time that Exxon can continue to fund its dividend if the macroeconomic environment does not improve significantly.”
Additional reporting by Harry Dempsey