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Oil giants’ profits on the skids as crude price dives

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  • The Wall Street Journal
  • 12:00AM August 1, 2016

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 $US41 a barrel.

ExxonMobil on Friday reported its quarterly profit fell 60 per cent to the lowest level since 1999, while Chevron disclosed its biggest quarterly loss since 2001. The results capped a bad week for big Western oil companies: BP and Royal Dutch Shell 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 US prices have fallen nearly 20 per cent since hitting a 52-week high of $US51.23 on June 8. US oil ended up 1.1 per cent on Friday at $US41.60 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 petrol has pushed crude prices lower just as the US summer driving season ends. That threatens to up-end oil executives’ expectations that the market — and profits — would begin to stabilise over the second half of the year.

Exxon, Shell, Chevron, BP and French oil major Total in all have cut spending by about $US50 billion ($66bn) 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 $US1.7bn and Chevron reported a loss of $US1.5bn. Shell’s profit fell 93 per cent from a year earlier to $US239m, and BP reported a $US2.25bn 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 $US90bn by the end of the year.

The results, and the rollercoaster 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 headcount 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.

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

For much of the past month, Brent crude prices have been trading well below $US50 as a fuel glut undermined the recovery seen in the second quarter.

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

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