Oil Giants Recover as Prices Rebound
Big oil companies returned to profitability during the first quarter as they recovered from the unprecedented destruction of oil and gas demand wrought by the coronavirus pandemic.
Exxon Mobil Corp. XOM -1.82% reported $2.7 billion in net income Friday, its first quarterly profit since the pandemic erupted last spring, while Chevron Corp. CVX -3.09% reported $1.4 billion in first-quarter profit. The results were boosted by rising oil prices during the first months of 2021, as countries around the world soften coronavirus quarantines.
The largest European oil companies, BP BP -0.76% PLC, Royal Dutch Shell RDS.A -1.35% PLC and Total SE, TOT -2.15% all reported profits earlier in the week after enduring huge losses last year.
“The strong first quarter results reflect the benefits of higher commodity prices and our focus on structural cost reductions, while prioritizing investments in assets with a low cost of supply,” Exxon Chief Executive Darren Woods said in a statement.
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Oil companies endured one of their worst years on record in 2020, as Covid-19 lockdowns choked off demand for oil and gas as road and air traffic fell precipitously. Exxon reported its first annual loss in modern history in 2020 of about $22 billion.
But cautious optimism has been mounting that global economic activity could return to pre-pandemic levels later this year as vaccines become more widely available around the world.
Chevron Chief Financial Officer Pierre Breber said that demand for gasoline and diesel was nearly back to pre-pandemic levels, and that jet fuel is the last remaining overhang, with strong signs that domestic air travel in the U.S. is picking up.
“As we look forward, the next couple of quarters look very good,” Mr. Breber said in an interview. “We feel good about our ability to generate cash.”
Chevron’s net income was down about 62% from the same quarter last year, but was a substantial increase from a $665 million loss in the previous quarter. Exxon’s $2.7 billion profit compared with a $610 million loss a year ago. BP’s profit more than tripled from the previous quarter to nearly $4.7 billion, and Shell reported a profit of almost $5.7 billion.
Share prices for the world’s largest energy companies have moved in tandem with oil prices that have rebounded markedly in recent months. U.S. oil prices are up nearly 80% over the past six months, while the shares of Exxon, Chevron, BP and Shell are collectively up about 65%. On Thursday, U.S. oil prices neared a six-week-high of about $65 a barrel.
Still, the optimism about oil and gas demand rebounding is being tempered by concerns about rapidly rising Covid-19 case numbers in India and South America, said Bjornar Tonhaugen, an analyst at Rystad Energy. Reduced economic activity in India alone may sap as much as 900,000 barrels of oil a day from global demand, according to Rystad.
“For the moment optimism is helping prices but every trader’s eyes are on India,” Mr. Tonhaugen said. “The oil bulls are out again but it’s doubtful that they are having a confident and calm sleep.”
In response to growing profits, Chevron, BP and Shell boosted their payouts to investors. On Wednesday, Chevron increased its quarterly dividend by 4%, while Shell also raised its dividend 4%, the second increase since slashing it last year. BP said it would buy back $500 million of shares. Total and Exxon held their dividends flat.
The weeklong freeze in Texas that left millions without power in February affected profits for many of the companies, which both produce oil in the state and own plants there to convert the hydrocarbons into fuels and plastics.
Chevron’s refining and chemical units reported $5 million in profits, down from $1.1 billion a year ago, which Chevron CEO Mike Wirth attributed to the February storm and continuing impact of the pandemic. In total, the storm cut about $300 million from its profit, Chevron said.
Exxon said the extreme weather reduced earnings by nearly $600 million. Meanwhile, analysts attributed the strong performance of BP’s trading unit to its ability to capitalize on substantial price fluctuations during the storm.
Despite the improving conditions, Chevron has pledged to keep capital expenditures austere. Mr. Wirth said capital spending decreased 43% from last year during the quarter, citing its corporate restructuring last year that saw as much as 15% of its workforce laid off. Exxon also has pledged fiscal restraint, saying its plan to cut annual capital spending by about 30% remains unchanged.
Oil giants during the pandemic
Some investors remain deeply skeptical of the industry notwithstanding climbing commodity prices, according to Paul Sankey, an independent oil and gas analyst. Most of the companies’ share prices are still trading below their pre-pandemic levels as investors evaluate the firms’ plans to navigate tightening global regulations on carbon emissions.
Mr. Sankey said the industry delivered poor results for years from their core oil business before the pandemic, leaving some to doubt they can reap profits from renewable energy or technologies to reduce carbon emissions, which some of the companies have promised to do.
“Their track record is not good enough for them to get into a new theme, because they did so poorly on the old one,” Mr. Sankey said.
Write to Christopher M. Matthews at [email protected]
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Published at Fri, 30 Apr 2021 12:53:00 +0000
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