Big Oil posts big losses during coronavirus crisis

Source: By Dino Grandoni, Washington Post • Posted: Tuesday, May 5, 2020

The numbers are in: We now know just how badly the country’s top oil drillers were hit by the coronavirus-fueled downturn.

Three of the four biggest U.S. oil and gas producers posted multimillion to multibillion dollar losses in their latest earnings reports, a sign of just how damaging the drop in energy demand because of the covid-19 pandemic has been to the domestic oil business.

A drilling rig in Midland, Tex. (Callaghan O’Hare/Bloomberg News)

ConocoPhillips, the third-biggest U.S. oil driller by market capitalization, announced late last week that it lost $1.7 billion during the first three months of the year. Phillips 66, the fourth-largest, reported a first-quarter loss of $2.5 billion.

And ExxonMobil, long the nation’s top energy company, bled $610 million during the first three months of 2020, when oil globally lost two-thirds of its value. It is the first time the company has posted a quarterly loss in the past three decades.

“We’ve certainly weathered the ups and downs of many price cycles,” its CEO Darren Woods said during an earnings call Friday. “However, I have to say, we’ve never seen anything like what the world is experiencing today.”

The U.S. oil majors operate around the world, but it’s their Texas operations that will be taking a hit.

The companies will try to sustain their bottom lines by cutting production in the Permian Basin. The storied oil-rich region stretches through western Texas and southeastern New Mexico, and enjoyed a surge in production with the advent of hydraulic fracturing technology.

But now with the drop in the price of oil making Permian crude too expensive to get out of the ground, that boom is quickly turning into a bust.

Exxon said it expects to ramp down Permian rigs by about 75 percent and end the year with only about 15 rigs. Altogether, the company is slashing its capital spending for 2020 by 30 percent.

Chevron, the nation’s No. 2 oil company, said it expects to cut 125,000 barrels per day from its original production target for the Permian by the end of the year. It began the year running 17 rigs in the Permian but now is running only five.

The company was alone among those top four to make a first-quarter profit, earning $3.6 billion in part off the strength of its refining division. “Our first quarter was a solid quarter, and I think the results reflect that,” Chevron CEO Mike Wirth said on Bloomberg TV.

But he warned: “Second quarter is a little bit tougher.”

And ConocoPhillips said it expects to cut production not just in the Permian, but across North America by about 460,000 barrels per day by June.

Overall, output from the top American and European oil majors is set to drop by nearly 11 percent next quarter, according to an analysis by Reuters. The European majors BP and Dutch Royal Shell saw declined profits to start 2020 too, with Shell slashing its dividend to shareholders for the first time since World War II.

While the oil giants are taking body blows, it’s smaller U.S. oil companies that are most at risk.

A handful of smaller oil companies, including Whiting Petroleum and Diamond Offshore, have already filed for bankruptcy.

Yet more mid-tier firms, heavily indebted to expand shale production when oil prices were high, are at risk of needing Chapter 11 protection if the price of oil remains low.

The Federal Reserve is preparing to throw a lifeline to distressed firms in the energy sector and elsewhere. But the American Petroleum Institute, which represents major oil companies in Washington, has stressed that it wants no special aid for the oil industry.

Some industry analysts say the bigger oil companies are ultimately aiming to gobbling up the assets of smaller firms that go belly-up.

“Ultimately what’s going to happen,” Boris Schlossberg, a managing director at BK Asset Management, said last month, “is you’re going to have massive consolidation; they’re going to be able to buy assets incredibly cheap.”