US oil giants Exxon Mobil and Chevron said they were curtailing some production as they slash capital spending in response to an acute industry downturn in the wake of the coronavirus crisis.
Both US oil giants announced the belt-tightening moves as they reported first quarter results, a period that saw oil prices retreat, but which preceded the first-ever drop in US crude futures to negative territory in April. Results are expected to be far worse in the second quarter.
Exxon Mobil, which reported its first quarterly loss in decades, said it would curtail 400,000 barrels of oil-equivalent per day in the second quarter for "economic" reasons.
Exxon Mobil reported a $610 million loss for the first quarter, compared with $2.4 billion in profits in the year-ago period. Revenues fell 11.7 percent to $56.2 billion. The loss included $2.9 billion in non-cash costs on inventory and assets because of low commodity prices.
Exxon Mobil reduced capital spending by 30 percent to around $23 billion for 2020 and will trim operating expenses by 15 percent. The company will slow some projects in the US Permian Basin and Mozambique, as well as expansions of downstream and chemical plants.
The oil and gas production that has been shut is short cycle and could be ramped up quickly if crude prices suddenly improve, company officials said.
Exxon Mobil Chief Executive Darren Woods said the company expects a difficult second quarter, but he pointed to "encouraging" signs in China as it has begun to ramp up its economy following coronavirus shutdowns. Some US states have also lifted shelter-in-place directives in recent days.
Shares of both companies fell, but Exxon Mobil dropped much more significantly as the company faced skeptical questions from analysts over its strategy.
Chevron reported first-quarter profits of $3.6 billion, up 35.9 percent from the year-ago period. Revenues fell 10.5 percent to $31.5 billion.
Exxon’s Woods defended recent company moves to take on billions of dollars in new debt and a decision to maintain its dividend. "We think the dividend is an important part of the value proposition we provide to our investors," Woods said.
The company could revisit the dividend if confronted with "some sustained structural" decline, he said. "But we're not seeing that today."
Although oil and natural gas prices were lower than in the year-ago period, Chevron’s downstream division scored much higher profits due in part to lower crude prices.
Still, the company's press release noted that "financial results in future periods are expected to be depressed as long as current market conditions persist."
Chevron announced it was further trimming 2020 capital spending by $2 billion to $14 billion in response to the operating environment. The company in late March had slashed the budget by 20 percent.
A company presentation listed April curtailments of 80,000 barrels a day rising to between 200,000 and 400,000 a day in June.
"Chevron is responding to these unprecedented challenges by making changes to what we control, and with a commitment to protect the long-term health and value of the company," said Chief Executive Mike Wirth.
Like Exxon Mobil, Chevron has also strongly committed to maintaining its dividend.
Moody's analyst Pete Speer said Chevron's results were "solid" under the circumstances and that the company's measures to lower spending "position it well to ride out the coronavirus pandemic challenges and preserve its credit profile."
By contrast, Speer said Exxon Mobil had much higher negative cash flow during the first quarter, adding that "rising debt in 2020 will continue to pressure ExxonMobil's credit profile."
Shares of Exxon Mobil fell 7.2 percent to $43.14 in morning trading, while Chevron dropped 2.8 percent to $89.44.
