Energy Firms Post Gusher Of Earnings -- WSJ
July 29 2017 - 2:02AM
Dow Jones News
By Bradley Olson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 29, 2017).
The largest U.S. energy companies reported robust earnings on
Friday, continuing a quarter in which the world's big oil firms
have posted some of their strongest gains since a pronounced price
crash began in 2014.
Exxon Mobil Corp. nearly doubled its second-quarter profit
compared with a year ago, to $3.35 billion, and Chevron Corp.
jacked up its bottom line to $1.45 billion.
The gains came even as oil prices fell again in the quarter,
dipping below $50 a barrel, and questions about future demand
continue to weigh on producers, underscoring the dramatic
transition under way in the industry to curb ambitions, cut costs
and focus on smaller-scale opportunities.
Friday's tallies echoed results at Royal Dutch Shell PLC,
Norway's Statoil ASA and France's Total SA. Collectively, the five
energy companies this year are off to their best start since 2014,
generating excess cash and profits that outstrip any two
consecutive quarters in the past two years.
They generated more than $30 billion in cash and managed to
avoid sliding deeper into debt, an increasingly important barometer
of an oil producer's ability to survive the crisis.
In addition to cutting costs by tens of billions, many energy
companies have reoriented their businesses toward projects that can
be completed quickly and produce profits within a few years rather
than after more than a decade of upfront, billion-dollar
spending.
"For us to compete and win," Exxon Vice President Jeff Woodbury
told analysts on a call, "we have got to be the lowest
cost-of-supply producer out there."
While the sector's improved performance doesn't yet match
precrash levels, it does back up executives who have told investors
in the downturn that the largest Western producers can thrive in a
lower-price era.
"The companies are at different stages of learning how to deal
with this low-price environment," said Brian Youngberg, an energy
analyst at Edward Jones. "They will need to remained disciplined
with their spending or investors will shun them."
Oil prices have risen recently to two-month highs on momentum
furthered by recent inventory declines. Market observers have long
said a sustained reduction in the amount of oil being stored would
point to a partial price recovery as it would indicate greater
demand. U.S. prices this week settled above the $49 mark for the
first time since May 30.
The push to a "short cycle" strategy has helped companies such
as Exxon, Chevron and Shell prepare for a world in which prices
don't return to $100 a barrel for many years, if ever.
Shell Chief Executive Ben van Beurden said Thursday that the
company had adjusted to a world in which prices could remain "lower
forever" due to the potential for declining demand.
While Exxon and Chevron don't share the view that falling oil
demand is a threat to their business before 2040, the companies
have nonetheless pivoted toward investments that pay off quickly,
especially in the U.S.
Through 2020, the U.S. units of big oil companies such as Exxon
are expected to grow by about 7% a year, adding about 800,000
barrels a day of oil and gas production, largely from fracking
operations in West Texas and deep-water drilling in the Gulf of
Mexico, according to Tudor Pickering Holt & Co.
One challenge is coaxing the same returns out of shorter-term
projects that the companies enjoyed with high-price,
multibillion-dollar developments. Both Chevron and Exxon lost money
in their U.S. drilling operations in the quarter.
Chevron said its land in West Texas and New Mexico could be
worth as much as $50 billion. The company's wells in that area --
one of the hottest for drilling in the world -- can bring a 30%
return, even including all associated costs such as overhead, said
Executive Vice President Jay Johnson.
"We continue to look for the next best development areas," he
said Friday in a call with analysts. "We're using technology and
the experience of others. And we are seeing continued
improvement."
Exxon's second-quarter profit of $3.35 billion came to 78 cents
a share; a year earlier, the company posted a profit of $1.7
billion, or 41 cents a share. Analysts polled by Thomson Reuters
were expecting earnings of 84 cents a share in the latest period.
Exxon shares fell 1.5% Friday, marking a nearly 12% decline for the
year.
Chevron's profit of $1.45 billion compares with a year-earlier
loss of $1.47 billion, stemming largely from asset write-downs.
Chevron shares rose 1.9% Friday, but are off 8.1% this year.
Ezequiel Minaya contributed to this article.
Write to Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
July 29, 2017 02:47 ET (06:47 GMT)
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