By Bradley Olson and Erin Ailworth
Chevron Corp. is readying a second wave of layoffs and slashing
its capital spending by more than $9 billion this year, the company
said Friday as it reported a surprise fourth-quarter loss of more
than half a billion dollars.
The company's first failure to turn a quarterly profit since
2002 is a sign of the deepening challenge for U.S. energy producers
as oil and gas prices languish at their lowest levels in more than
a decade. Chevron's full-year 2015 profit of $4.6 billion is the
lowest annual total in 13 years.
Chevron late last year said it would reduce its employee count
by about 10%. Chief Executive John Watson said 3,200 workers were
let go in 2015 and another 4,000 layoffs are coming this year.
The energy company's U.S. oil-and-gas-pumping business lost
nearly $2 billion in the last three months of 2015, mostly because
of write-downs. Chevron is the first big energy company to report
fourth-quarter financials, and its results are an indication that
losses at other drillers will likely extend into the tens of
billions.
To stem the tide of low commodity prices and help finance
dividend payments to shareholders, Chevron plans to sell up to $10
billion in oil fields and other assets through 2017. It also
expects to dial back spending on drilling and other capital
expenditures significantly. A $26.6 billion spending plan detailed
in December will have to be reduced given how much oil market
conditions have since deteriorated, Mr. Watson told analysts and
investors on a call to discuss results.
"We're tightly scrutinizing what we're spending right now," he
said.
Shares fell 0.1% to $85.82 Friday, even as oil continued a
week-long rally amid hopes that Russia and the Organization of the
Petroleum Exporting Countries would agree on a deal to curb
production, which would potentially lift prices.
"Nobody breaks even at $30 oil," said Fadel Gheit, an energy
analyst at Oppenheimer & Co. "With Chevron and everybody else,
there will have to be more cuts that go even deeper. It's not
welcome news for investors."
The three other biggest Western oil companies-- Exxon Mobil
Corp., Royal Dutch Shell PLC and BP PLC--are all scheduled to
release earnings in the next week. Combined with Chevron, they are
expected to report annual profits of about $22 billion, the lowest
total in almost two decades, according to S&P Capital IQ.
Oil companies around the world have been battered by a price
crash that has kept crude and natural gas stubbornly low. Producing
countries such as Saudi Arabia and major international oil
companies like Chevron have all continued to pump more fuel in the
face of the crisis--a standoff that shows no signs of abating.
Pat Yarrington, Chevron's chief financial officer, said ratings
firms appear to be leaning toward a downgrade of the oil industry,
a step she said would have a broad effect across the sector.
If it does occur, such a downgrade would be a symbolic blow,
especially to companies as large as Chevron and Exxon Mobil Corp.,
which holds one of the few AAA bond ratings in corporate
America.
The second-largest U.S. energy company by revenue behind Exxon,
Chevron boosted output to 2.67 million barrels a day in the fourth
quarter, a 3.4% increase over the same period last year. The
company also managed to replace more than 100% of its 2015
production, booking more oil and gas reserves thanks to projects in
Australia and West Texas. The company's $54 billion Gorgon
natural-gas export development in Australia is set to begin
producing liquefied natural gas in a few weeks.
"The future for Chevron remains really good, although it may not
show in 2016 or 2017, or until prices rebound," said Brian
Youngberg, an energy analyst at Edward Jones in St. Louis. "We're
going to see a very strong recovery in cash flow for Chevron."
That oil price rebound can only materialize when the supply
crude glut subsides, according to Mr. Watson.
"We believe demand will continue to grow. The larger wild card,
or uncertainty, if you will, is supply," he said, adding that oil
production should fall later this year, lifting prices. "Until that
balance occurs, prices will continue to be constrained and the
financial damage to the energy sector seen in 2015 will
continue."
Chevron reported a loss of $588 million, or 31 cents a share, in
the fourth quarter, down from a profit of $3.47 billion, or $1.85 a
share, in the prior-year period. Revenue tumbled 37% to $29.25
billion. Analysts were expecting the company to turn a profit, and
had projected 45 cents a share in earnings, according to Thomson
Reuters.
In its refining division that turns oil into fuels such as
gasoline and diesel, Chevron's profits were cut nearly in half,
falling to $496 million.
Lisa Beilfuss contributed to this article.
Write to Bradley Olson at Bradley.Olson@wsj.com and Erin
Ailworth at Erin.Ailworth@wsj.com
(END) Dow Jones Newswires
January 29, 2016 16:30 ET (21:30 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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