U.S. oil giants play chicken with shareholders

As far as the nuts and bolts go, Chevron is in a relatively stronger position

  
The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019. P

The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, U.S. November 24, 2019. P

REUTERS/Angus Mordant

DALLAS - U.S. oil giants Exxon Mobil and Chevron have something to learn from European counterpart Royal Dutch Shell. On Thursday the $128 billion Dutch fossil fuel company said that it was cutting its dividend and reiterated its commitment to big changes in the coming decades. Its U.S.-based peers, which reported first-quarter earnings on Friday, are thinking about the future, too, but only as it pertains to the commodity’s price. They are playing a game of chicken with shareholders.

As far as the nuts and bolts go, Chevron is in a relatively stronger position. The company booked a profit in part because of asset sales, but the main businesses of producing and selling oil and gas made money, including its U.S. segment, which was harder hit by low commodity prices. Exxon chalked up losses. Both companies paid out dividends and reiterated their commitment to them: All told the two firms shelled out some $30 billion in 2019 and the first quarter this year.

But neither company did the soul-searching of Shell. Exxon Chief Executive Darren Woods said it would be a “challenging summer” but pointed to a v-shaped recovery in oil demand. He trotted out the same optimism the Texas-based company has had for years, as if a pandemic might not fundamentally change global economic growth. He still believes that the middle class in emerging economies will flourish, pushing up the demand for fossil fuels.

Chevron is staying firmly committed to fossil fuels as well. It acknowledges a greener world, but changes to its business relate only to cutting carbon emissions in the process of making and selling oil and gas, such as using wind turbines to power oil fields.

That puts both companies on a treadmill. Commodity pressures existed before Covid-19. Sure, the current situation is extreme, but it also has underscored how much oil is sloshing around without buyers. Mergers could help cut costs in the nearer term. But last year Exxon’s return on average capital employed was only 6.5% while Chevron’s similar figure was a lowly 2%. That’s a far cry from the double digits in the days of yore.

Investors in big oil companies expect them to produce a commodity that is valuable, but perhaps more important, they expect them to put up returns.

CONTEXT NEWS

- Exxon Mobil on May 1 reported a first-quarter loss of $610 million, or 14 cents per share, compared with earnings of $2.4 billion, or 55 cents per share, a year earlier. Its losses stem from a $3 billion write-down on assets due to lower oil prices. The company said production of 4 million barrels of oil equivalent per day was up 2% from the first quarter of 2019.

- On the same day, Chevron said that its profit rose in the first quarter to $3.6 billion, or $1.93 a share, from $2.6 billion, or $1.39 a share, in the same quarter last year after the company sold assets in the Philippines and Azerbaijan. Production rose 6% to 3.2 million barrels of oil equivalent per day.

(Editing by Jennifer Saba and Leigh Anderson)


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