Exxon, Chevron disappoint investors in “challenging” market

By Kevin Crowley and Javier Blas on 1/31/2020

HOUSTON (Bloomberg) - Exxon Mobil and Chevron posted the weakest results in years because of disappointing results in almost all of their business lines.

Exxon appeared to defy investor demands for financial discipline and heftier returns by outspending cash flow for the eighth time in 10 quarters. Meanwhile, U.S. rival Chevron registered its steepest loss in a decade due to the shrinking value of North American natural gas fields and weakening performance at overseas refineries and oil projects.

The pain is far from over: Exxon Chief Executive Officer Darren Woods warned that conditions in its chemical business will continue to be “challenging” through 2020 and predicted the worldwide glut of natural gas will take some time to burn off.

Big Oil is at a critical juncture as investors increasingly fret about the role of fossil fuels in warming the planet. Weak quarterly results can undermine confidence in the dividends that compelled investors to bet on companies like Exxon, Royal Dutch Shell Plc and Chevron.

Shares of both U.S. companies plunged as trading opened in New York, with Exxon dropping more than 4% to the lowest since 2010. Chevron slid the most in almost four months. The results were presaged by Shell’s gloomy earnings report on Thursday that prompted the European supermajor to slow share buybacks.

Exxon’s $35 billion-a-year rebuild of its upstream portfolio is swallowing up so much cash that the company is unable to consistently pay dividends from cash flow, leaning heavily on asset sales and borrowing to fund the payout.

Perhaps more ominous for Exxon is that the Permian Basin that was seen as one of the company’s future profit engines is showing signs of trouble. The company’s oil output in the region continued to grow in the fourth quarter, but at a slower pace than before. Meanwhile, its Permian gas output dropped.

The supermajor’s fourth-quarter capital spending exceeded analysts’ estimates by 36%, demonstrating Exxon’s commitment to a raft of new oil and natural gas investments. Excluding the $3.7 billion sale of its Norwegian assets, per-share earnings were 41 cents, the lowest since 2016.

The $355 million loss in chemicals was the first negative return for that business since 2006, according to RBC Capital Markets.

“We expect the market reaction to be negative to this set of results today,” RBC analyst Biraj Borkhataria said in a note to clients. “This leaves the company’s dividend completely uncovered by organic cash flow for another quarter.”

Exxon’s Woods is facing plunging margins in oil refining and chemicals at a time when crude prices have stagnated and natural gas is in free-fall. Refining margins shrank in Europe and Asia while chemical prices are tumbling due to an “unprecedented level” of supply addition, according to Wood Mackenzie Ltd.

Gas makes up almost nearly 40% of Exxon’s overall production. In the U.S., the fuel is trading close to its 1990s lows, while prices for liquefied cargoes heading for Asia have tumbled almost 50% in the past year.

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