​Exxon, Chevron earnings gutted by virus-driven demand slump

Exxon Mobil Corporation and Chevron Corporation posted the worst losses in a generation after the pandemic and a global crude glut combined to batter almost every part of their businesses.

Exxon’s $1.1 billion second-quarter loss was the deepest in the company’s modern history. A collapse in crude prices bled the company’s production division while Covid-19 lockdowns lowered demand for everything from jet fuel to plastic wrap, hobbling the company’s refining and chemical units.

Chevron recorded its weakest performance in at least three decades and warned that the global pandemic wreaking havoc upon energy markets may continue to drag on earnings. Shares of both explorers declined in pre-market trading.

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.

Exxon generated zero cash from operating activities during the quarter, according to a statement on Friday.

“I was looking at the press release and was like, ‘Is that a typo?’” said Jennifer Rowland, an analyst at Edward D. Jones & Co. in St. Louis. “It’s mind boggling for a company the size of Exxon.”

Exxon fell 2.3 per cent to US$40.90 in pre-market trading. Chevron declined 3.3 per cent.

Exxon, which earlier this year began taking efforts to reduce its U.S. workforce, said it’s developing plans to further curtail operating expenses, without providing details. The company’s 26-cents per-share loss was better than the 64-cent average loss from analysts in a Bloomberg survey.

The worst-ever crude crash came at a vulnerable time for Exxon because it had just embarked on an aggressive, multibillion-dollar rebuilding program. After slashing $10 billion in capital spending and freezing dividends, Chief Executive Officer Darren Woods may be running out of levers to pull.

On Friday, Woods said that, based on current projections, the company won’t take on any additional debt. The pledge appears to be a strategic shift and a defensive move to counter investors who claimed it would test the boundaries of acceptable leverage levels in the next few years.

Chevron fully erased the value of its Venezuela operations from its books, amounting to $2.6 billion, after they were effectively frozen by U.S. sanctions, and wrote down another $1.8 billion in assets due to lower commodities prices.

Even stripping out the impairments, Chevron’s adjusted loss was $3 billion, more than twice the average analyst estimate in a Bloomberg survey and the deepest since at least 1989.

“While demand and commodity prices have shown signs of recovery, they are not back to pre-pandemic levels, and financial results may continue to be depressed into the third quarter 2020,” Chevron said in a statement Friday.

Venezuela and low prices aside, Chevron also had a one-off charge of $780 million related to its plan to cut 6,000 jobs, or about 13 per cent, of its workforce.

Despite the red ink, Chevron CEO Mike Wirth saw an opportunity for expansion amid the rout: the $5 billion, all-stock takeover of Noble Energy Inc. announced less than two weeks ago. The deal comes at a minuscule premium and plugs holes in Chevron’s long-term portfolio, analysts noted.

© 2020 Bloomberg L.P.

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