The long decline in oil prices is hitting U.S. oil companies where it hurts and forcing them to scale back some investments in their production that would otherwise drive future growth.
Exxon Mobil and Chevron on Friday posted their worst quarterly results of the current decade as oil and natural gas prices continued to plunge.
The results of the companies, and those of almost the entire oil patch this week, were disappointing but not all that surprising since the price of oil is now half what it was a year ago. With most benchmarks hovering around $50 a barrel at the height of the driving season, many analysts say the price will go down further before it rises again.
Oil prices are under pressure, driven by a glut of oil in the United States and on world markets because of resilient domestic production and increased production by Saudi Arabia and other Persian Gulf states. The recent nuclear deal with Iran may eventually add as much as a million barrels a day to the global market of 94 million barrels, further dousing speculation that prices will rebound soon.
The two U.S. oil giants are better off than most of their smaller peers, which in recent days have been cutting their payrolls, writing down assets and in some cases reporting losses. The oil giants’ refinery businesses benefit from the grinding drop of commodity prices, but the strength of their global diversified businesses was not substantial enough to balance the reduced revenue of their exploration and production businesses.
The gloomy mood among oil executives was summed up this week by Al Walker, Anadarko’s chief executive, who told analysts: “It just seems unlikely that we will have the kind of margins that we have seen historically that would encourage us to go back into a growth mode.”
Exxon Mobil, the largest U.S. oil company, reported a 52 percent drop in profit for the second quarter. Revenue dropped by a third and the profits of its exploration and production businesses declined 74 percent to $2 billion. On the positive side, Exxon Mobil’s oil and gas production rose nearly 4 percent, reflecting improved efficiencies across the industry.
Chevron’s net income fell severely in the second quarter to $571 million from $5.67 billion in the same quarter a year ago. Revenue fell to $40.4 billion from nearly $58 billion a year ago. Over the first six months of the year, Chevron cut its capital and exploratory expenses to $17.3 billion from $19.6 billion over the first half of 2014.
Its oil and gas production businesses actually lost money, $2.22 billion, compared with earning more than $5 billion in the year-ago quarter. The company announced a writedown on assets of $1.96 billion. This week the company said it would cut 1,500 jobs as part of an effort to reduce costs by $1 billion.
Energy companies that have long been known for hefty profits are now forced to cut investments around the world. Rystad Energy, a consulting firm based in Norway, has estimated that the cuts will amount to $180 billion in 2015 alone. That has brought tens of thousands of job losses, which are beginning to hurt the economies of energy-rich states like Louisiana, North Dakota, Oklahoma and Texas.