IOC Interoil Corp. (delisted)

By Bradley Olson and Selina Williams 

The world's biggest oil companies posted losses or steep declines in profit for the second quarter, and now face a daunting remainder of the year as crude prices retreat to about $41 a barrel.

Exxon Mobil Corp. on Friday reported its quarterly profit fell 60% to the lowest level since 1999, while Chevron Corp. disclosed its biggest quarterly loss since 2001. The results capped a bad week for big Western oil companies: BP PLC and Royal Dutch Shell PLC earlier posted earnings that disappointed investors.

"The second-quarter results reflected lower oil prices and our ongoing adjustment to a lower oil price world," said Chevron Chairman and Chief Executive John Watson.

Oil is flirting with bear-market territory once again, as U.S. prices have fallen nearly 20% since hitting a 52-week high of $51.23 on June 8. U.S. oil ended up 1.1% on Friday at $41.60 a barrel.

The average oil price for the second quarter was down from a year earlier, though the slide in producers' performance was even worse. One of the main reasons is that margins have fallen precipitously in the refining business, which had been propping up the companies' bottom lines as most lost money producing oil and gas.

Fears of oversupply have gripped the market as a glut of gasoline has pushed crude prices lower just as the summer driving season ends. That threatens to upend oil executives' expectations that the market -- and profits -- would begin to stabilize over the second half of the year.

Exxon, Shell, Chevron, BP and French oil major Total SA in all have cut spending by about $50 billion since 2013 and slashed tens of thousands of jobs; but the cutting hasn't been nearly enough to protect profits after oil prices began plunging.

In the latest quarter, Exxon's profit fell to $1.7 billion and Chevron reported a loss of $1.5 billion. Shell's profit fell 93% from a year earlier to $239 million, and BP reported a $2.25 billion loss, its third straight.

Debt has soared at all five companies as they continue to burn though cash at an extraordinary rate. Since last year, they have failed to generate enough cash to pay dividends and invest in new production. That shortfall is on a pace to exceed $90 billion by the end of the year.

The results -- and the roller-coaster market for crude -- have confronted executives, investors and analysts with the sobering reality that a recovery will be tenuous and arduously slow.

"The road ahead is going to be a tough one for the majors," said Gianna Bern, an associate professor of finance at the University of Notre Dame who has advised big oil companies. "The mantra has been to cut spending, reduce head count and wait for higher prices, but it doesn't look like those are coming any time soon."

Shares of big oil companies slumped this week as the extent of their losses became public. Energy executives have sought to reassure shareholders that energy prices will rebound. Similar predictions last year were dashed when prices dipped again after a modest rebound.

Exxon fell 4.9% this week to close at $88.87 on Friday. Chevron dropped 2.3% to $102.47. BP's American depositary receipts fell 3% to $34.40 and Shell's fell 4.1% to $51.81.

Shell CEO Ben van Beurden said he believed the market would come back into balance in the second half of the year.

Billionaire U.S. drilling pioneer Harold Hamm and executives at EOG Resources Inc., the big shale producer, both predicted that prices would rebound in the second half of 2015.

Instead, they fell to a 13-year low in January at $27 a barrel.

Many oil and gas companies have promised to "live within cash flow" by next year, assuring investors that they will be able to generate enough money to pay for new projects and dividends without additional borrowing.

Total said it would need oil prices at $60 a barrel to reach that mark, while BP Chief Executive Bob Dudley said the company could deliver in 2017 if oil prices are between $50 and $55 a barrel.

So far this year, oil has sold for an average of about $40 a barrel.

"We're not counting on a recovery in oil prices," Mr. Dudley said in an interview. "Oil companies made money at $20 a barrel in the past, so if we're going to stay lower, the whole industry would rebase itself."

That goal may be more elusive than investors realize. In 2013, when global oil prices averaged about $109 a barrel, the five companies all failed to generate enough cash to meet spending commitments and dividend payments.

The shortfall was $41 billion, according to a Wall Street Journal analysis.

For much of the past month, Brent crude prices have been trading well below $50 as a gasoline glut undermined the recovery seen in the second quarter.

Prompted by last year's strong profit margins in refining, most companies took advantage by ramping up output, which has heightened oversupply fears. Earlier this week, BP said its profit margins at its refineries fell to their lowest levels since 2010.

Total blamed its lower earnings on deteriorating revenue from its refineries and petrochemical plants. Exxon and Chevron saw such profits fall by almost half.

The decline in refining margins is largely due to oversupply, said Jeff Woodbury, Exxon's vice president of investor relations, in a call with investors Friday.

"Demand is growing, but the issue that we're all faced with right now are very large inventories of products," he said. "Either the demand has got to grow or the supply's got to shrink."

Some energy experts played down the carnage, saying big oil firms remain strong bets to bounce back over the long run.

"The difficult times are all a function of the low price, and while they still remain low, they will come back eventually," said Ed Hirs, a lecturer on energy economics at the University of Houston who runs a small oil and gas production firm. "This is probably the last quarter that we'll see the big oil companies trying to clean up their balance sheets."

--Anne Steele contributed to this article.

Write to Bradley Olson at Bradley.Olson@wsj.com and Selina Williams at selina.williams@wsj.com

(END) Dow Jones Newswires

July 30, 2016 02:47 ET (06:47 GMT)

Grafico Azioni Interoil Corp. (delisted) (NYSE:IOC)
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Grafico Azioni Interoil Corp. (delisted) (NYSE:IOC)
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Da Gen 2024 a Gen 2025