Oil Giants Post Historic Losses As COVID-19 Obliterates Demand

But Exxon Mobil and Chevron seek to assure investors the worst is over.

The country’s two largest oil giants posted their steepest losses in modern history on Friday, as the coronavirus pandemic and a glut of crude oil destroyed the demand market over the past three months.

Exxon Mobil Corp. disclosed a $1.1 billion loss in the year’s second quarter. Chevron Corporation lost $8.3 billion, driven in part by $5.2 billion in write-downs on assets the company deemed to have lost value. The reports sent both firms’ stock prices plunging.

“Look, it was a challenging quarter,” Pierre Breber, Chevron’s chief financial officer, said on a call with investors Friday. “We had very volatile industry conditions.”

The earnings marked a dramatic turnaround from a year earlier. During the second three months of 2019, Exxon Mobil earned $3.1 billion, while Chevron brought in $4.3 billion.

The companies sought to downplay the historic losses as flukes caused by the abrupt national lockdowns to contain the COVID-19 disease across the world. Neither Exxon Mobil CEO Darren Woods nor Chevron CEO Michael Wirth joined the Friday earnings calls ― doing so would have signaled to analysts that the companies wanted to soothe nervous investors amid worsening conditions.

Over the past five years, the stock prices for Exxon Mobil and Chevron have fallen.
Over the past five years, the stock prices for Exxon Mobil and Chevron have fallen.
Google Finance

Instead, other company officials insisted production would return, even as cautioning that earnings projections for 2021 were subject to change.

“We don’t think the long term has changed,” Neil Chapman, Exxon Mobil’s senior vice president, said on his company’s 90-minute call. “The fundamentals have not changed. The population will continue to grow. Economies will continue to grow. This relationship between society progress, or you could describe it as human development, and energy consumption is absolutely clear.”

Chevron said: “We’re back to full production.”

But even in the short term, it’s still unclear whether the worst effects of the coronavirus pandemic are over, said Fernando Valle, a senior oil and gas analyst at the research firm Bloomberg Intelligence.

“We don’t know the magnitude of the pandemic yet because we’re seeing a new peak in the U.S.,” he said by phone Friday. “We don’t expect lockdowns again, but people will stop driving if the virus jumps back up. We’ve seen that in Texas and California, where there aren’t government-mandated lockdowns per se, but demand has fallen because the virus is spiking in those regions.”

Exxon Mobil and Chevron are in different places financially, meaning the impact of the pandemic on them could diverge in the month ahead.

Earlier this month, Chevron bought drilling giant Noble Energy for $5 billion in a deal analysts say will actually help the oil behemoth’s balance sheet because it will allow the combined company to generate more cash.

Exxon Mobil’s net debt totaled more than $48 billion at the end of June, prompting Woods to announce in Friday’s written earnings release that, “We do not plan to take on any additional debt.” The company has continued spending more on projects than it is earning from selling oil, gas and refined products. This report marked the third in the past five quarters in which Exxon Mobil generated negative free cash flows, something that Clark Williams-Derry, an analyst at the Institute for Energy Economics and Financial Analysis, called a major shift.

“This is a new phenomenon,” he said. “The coronavirus has accelerated a process that was already underway, a process of financial strain and under performance.”

“We don’t think the long term has changed.”

- Neil Chapman, Exxon Mobil’s senior vice president

A starker comparison, he said, is to compare the two U.S. so-called oil “supermajors” to their European rivals. Unlike Exxon Mobil or Chevron, Anglo-Dutch giant Royal Dutch Shell cut its dividend payment to investors and French behemoth Total has invested heavily in clean energy.

“U.S. supermajors are underperforming dramatically, while European majors are struggling mightily but don’t have the same depths of underperformance of Chevron and Exxon,” Williams-Derry said. “The companies that are sticking to the old business model, that aren’t pivoting, are the ones really suffering.”

The risks that rapidly worsening climate change pose to the oil industry’s fundamental business are the subject of a growing number of lawsuits in the U.S., which accuse the country’s largest producers of lying for decades about the fossil fuel emissions’ effects on the atmosphere.

But the political risk to the industry if Democrat Joe Biden defeats President Donald Trump, an unabashed promoter of the fossil fuel industry, is “very much overblown,” Valle said.

The European Union is charging ahead with new green mandates as part of its coronavirus recovery package. But most countries are loosening environmental enforcement in a bid to spur new growth. In the U.S., new renewable energy mandates may take time to get started, the number of electric vehicles that can be rolled out quickly is limited, and “there will be a lot of resistance to anything in the short term” that would make cars, shipping, plastics or airlines more expensive, he said.

He noted that when Barack Obama assumed the presidency in early 2009 amid a cratering economy, ”he was actually fairly benign to the industry because there was a need to get the country back on track. I don’t expect it’ll be any different” under Biden.

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