Exxon Mobil Corp. and Chevron Corp. failed to offer short-term predictions for crude prices on earnings calls Friday, with the two major oil companies vowing to proceed as planned as far as oil and natural-gas production.
Exxon and Chevron disappointed Wall Street, with Exxon missing second-quarter earnings expectations by a wide margin. Chevron posted another loss although it beat per-share adjusted forecasts, but surprised the market with a $2.8 billion writedown related to oil and gas production.
For Chevron, it was the third straight quarter in the red; Exxon’s second-quarter net income was less than half of the year-ago period and its lowest in more than a decade. Weak refining margins in the quarter, a result of a glut in fuels that the U.S. summer driving season did little to abate, compounded the problem for both companies amid a recent dip in crude futures.
West Texas Intermediate crude prices CLU6, +0.58% have rebounded from lows in February near $26 a barrel, but since a peak above $51 in June have fallen by close to 20%, flirting with bear market territory.
The third quarter, which will likely feature the same weak refinery margins, “could be even worse,” said Michael Lynch, president of president of Strategic Energy & Economic Research.
“A rundown in product inventories could help with fourth-quarter profits for the majors, but that remains only an assumption now,” he said.
Chevron may update Wall Street on its production targets later on, but for now they stand, company executives told analysts at a conference call early Friday following quarterly results.
Patricia Yarrington, chief financial officer and vice president of Chevron, said the company is on track for 2016 capital expenditures of $25 billion or less and that for 2017 and 2018, it expects capital expenditures between $17 billion and $22 billion.
“If the current price environment persists, we will revisit the bottom end of the range as our primary goal is to be cash balanced,” she said.
During Exxon’s conference call, Jeffrey Woodbury, the company’s secretary and vice president of investor relations, told one analyst that “nothing has changed” in Exxon’s strategy—if the company gets “additional volume growth,” that’s even better, but Exxon continues to focus on “business fundamentals,” he said.
“Management essentially spoke a lot about the status quo—continuing to focus on return on capital, employing M&A when appealing, and allowing high gasoline inventories to work their way down,” said Justin McNichols, chief investment offer at Osborne Partners Capital Management.
To be sure, both companies have given Wall Street the same tack over the years, be it good or bad years for futures prices. The timelines on most of their projects are measured in years, not months, and even decades in the case of major discoveries.
Osborne Partners is likely to “delay increasing our crude-based E&P [exploration and production] exposure until the tail end of the year,” in favor of natural gas, McNichols said.
Activity and supply for natural gas “continue to be tepid,” while demand is on the rise from liquefied natural gas exports and record warm temperatures in June, he said. At the same time, many small natural-gas players have exited the sector due to bankruptcy, he said.
“We feel natural gas E&P has a superior fundamental story and set-up through 2017,” McNichols said.