More Bad News For Big Oil: Exxon-Mobil, Chevron Post Huge Second Quarter Losses

U.S. oil giants Exxon-Mobil (XOM) and Chevron (CVX) both posted huge second quarter losses as the COVID-19 pandemic decimates global energy demand.

Exxon reported a second quarter loss of $1.1 billion, or $0.26 per diluted share, blaming “global oversupply” and the pandemic. It was the company’s second consecutive quarterly loss. Exxon posted a $3.1 billion profit in the second quarter of 2019.

Capital and exploration expenditures amounted to $5.3 billion in the latest second quarter, almost $2 billion lower than in the first quarter.

“The global pandemic and oversupply conditions significantly impacted our second quarter financial results with lower prices, margins, and sales volumes,” Exxon Chairman Darren Woods said. “We responded decisively by reducing near-term spending and continuing work to improve efficiency.”

Chevron reported a loss of $8.3 billion, or $4.44 per diluted share, compared with a profit of $4.3 billion, or $2.27 per diluted share, in the year-ago quarter.

The company wrote down some $5.7 billion in oil and gas properties, including $2.6 billion in Venezuela.

“The past few months have presented unique challenges,” said Michael K. Wirth, Chevron’s chairman and chief executive officer. “The economic impact of the response to COVID-19 significantly reduced demand for our products and lowered commodity prices. Given the uncertainties associated with economic recovery, and ample oil and gas supplies, we made a downward revision to our commodity price outlook which resulted in asset impairments and other charges.”

Wirth warned that as demand and commodity prices have not returned to pre-pandemic levels, Chevron’s financial results “may continue to be depressed into the third quarter [of] 2020.”

The Wall Street Journal reported that even before the pandemic, the oil giants “were already struggling to attract investors” as concerns over “climate change regulations and increasing competition from renewable energy and electric vehicles cloud the future for fossil fuels.”

Investment bank Evercore noted that holdings of oil and gas companies by active money managers are now at a 15-year low.

Year-to-date Exxon shares have plunged 40% and Chevron shares have dropped about 30%.

Exxon, desperate to maintain its $15 billion annual shareholder dividend, has been cutting costs in order to raise that cash. Chevron just paid a dividend, but there are questions over how global oil companies can continue these payouts as share prices keep sliding.

The Journal noted that none of the world’s biggest oil companies are predicting a rapid recovery as nations continue to deal with coronavirus.

“COVID-19 is the elephant in the room and the U.S. death toll passing the milestone of 150,000 has spread concern to every kind of market, and commodities too,” Rystad analyst Bjornar Tonhaugen said.

Moreover, the integrated business model adopted by many large oil companies, including Exxon and Chevron, has failed to generate strong returns for the past decade due to the glut in fossil fuels caused by the fracking boom in the U.S.

“It’s hard to support the idea that the integrated model has created a lot of value for shareholders,” said Evercore analyst Doug Terreson. “A broad-based reassessment of the capital management programs at the [big oil firms] is required at this point.”

Meanwhile, the price of crude hovers around $40 per barrel.

Dan Pickering, chief investment officer of energy investment firm Pickering Energy Partners, said the oil can just survive at the $40 price level, but needs much higher prices to flourish.

As such, he thinks big oil will continue to cut costs.

“You’ve got to assume that this is the world we’re going to be in,” Pickering said. “And, if this is the world we’re going to be in, the cost structure is too high.”