Permian production saves Exxon Mobil, Chevron from steeper declines as profits fall
Nov. 01-- Nov. 1--Energy giants Exxon Mobil Corp. and Chevron Corp. reported smaller profits in the third quarter but staved off further declines with huge production growth in West Texas' Permian Basin that helped offset lower prices.
Exxon, headquartered in Irving, said its profits fell by nearly half to $3.2 billion from $6.2 billion in the third quarter of 2018. Chevron, of San Ramon, Calif., reported profits of $2.6 billion in the third quarter, down 35 percent from about $4 billion in the same quarter last year.
Chevron noted that a $430 million tax charge contributed to its lower earnings.
The underwhelming earnings of the two biggest U.S. oil companies was another signal that the energy industry remains sluggish. A global economic slowdown at the same time that U.S. producers are pumping record amounts of oil have stoked fears that markets are oversupplied.
Energy companies have suffered amid a stretch of lower oil prices, which ended the third quarter down more than 25 percent from a year earlier. U.S. oil prices have been stuck in the the range of $50-$60 per barrel for months. Oil settled at $56.20 a barrel in New York on Friday, up $2.02, or nearly 4 percent.
Both Exxon and Chevron emphasized their production growth, particularly in the Permian, during calls with investors and analysts Friday. Each company reported 3 percent increases in production from the third quarter of 2018, but gains in the Permian were immense. Exxon said Permian output surged more than 70 percent from a year ago. Chevron's Permian production increased 35 percent when compared with the third quarter of 2018.
Exxon said it has 55 drilling rigs active in the Permian, up from 34 last quarter.
Exxon's stock rose 3 percent Friday to close at $69.60 per share. The company reported about $65 billion of revenue in the third quarter, down 15 percent from $76.6 billion in the same quarter last year.
"It's fine but nothing to get all that excited about," Jennifer Rowland, senior energy analyst at Edward Jones Equity Research, said of Exxon's third quarter earnings.
Chevron's stock price fell immediately after its earnings report but recovered. Chevron's stock closed at $116.21, up 7 cents.
The majors' chemical and refinery earnings struggled this quarter, with both companies blaming a tough market environment with weaker margins. Exxon's U.S. refining operations earned $673 million, down about 43 percent from the third quarter of 2018. Exxon started production at a new polyethylene line in Beaumont this quarter.
Chevron's U.S. refining businesses earned $389 million in the third quarter, compared with $748 million a year earlier, a 48 percent decrease that the company attributed to higher operating expenses, turnaround and maintenance costs, and lower margins on refined product sales.
Political future of fracking
Looking forward, both companies were asked by analysts about the presidential election in 2020 and the potential for a ban on fracking in public lands. Chevron noted that the company does not have much exposure to the issue of federal lands -- less than 10 percent of the company's hydraulic fracturing activity is on federal lands, said Jay Johnson, Chevron's executive vice president for upstream.
"While we would not like to see restrictions on hydraulic fracking, that's the stance for our company," Johnson said. "Fracking is done safe and effectively, and it's really unlocked an economic benefit for the country."
Exxon executives also praised the economic benefit to the country. Fracking combined with horizontal drilling has made the U.S. the world's biggest producer of natural gas and oil. The "shale revolution" has created thousands of jobs, lowered energy costs and made the U.S. a major energy exporter, bringing billions of dollars into the country and trimming the nation's trade deficit.
Exxon executives added that a fracking ban was not an effective policy to reduce greenhouse gases.
"Any effort to ban fracking will not remove the demand for the resource," said Neil Hansen, Exxon's vice president of investory relations. "It will shift it away from the U.S. to another country."
Hansen said Exxon recognizes the risk that climate change poses and that the company is investing in carbon capture, utilization and storage technologies. While not mentioned during the call, the energy major is engaged in a high-profile court battle in New York over whether it defrauded investors by using two different price projections for carbon -- one for investors and one for internal project calculations.
erin.douglas@chron.com
Twitter.com/erinmdouglas23
