US majors shrug off weak results

The weak performances in the second quarter highlight the urgency to cut spending

The US majors' second-quarter financial results were weak, driven by lower oil prices than a year earlier, a decline in refining margins and — in Chevron's case — impairment charges. But the companies are on track to exceed their spending and cost reduction targets in 2016, and remain confident of balancing their cash flows next year.

Chevron expects capital expenditure (capex) this year of "somewhere between $24bn and $25bn". The firm said in March that capex would be closer to $25bn, while its initial 2016 budget was $26.6bn. The company has not changed its $17bn-22bn/yr capex guidance for 2017-18. "But obviously, we need to be market-responsive and so, right now, we are thinking it is towards the lower end of that range," chief financial officer Pat Yarrington says. "We will probably be lower than that or certainly at the very low end of that range", if oil prices do not recover from where they are now, she says.

Chevron's operating expenditure was down by 8pc in the first six months of this year compared with the same period of 2015. "We expect a downward quarterly trend to continue in the second half of this year, as we realise the full-year run rate of organisational actions and supply chain initiatives," Yarrington says. Chevron has reiterated its target to cover dividends and investment from operating cash flow and divestment proceeds next year. "We remain committed to becoming cash balanced in 2017. Our projects are coming on line, and we are making huge strides in lowering our cost structure and getting our capital outflows down," Yarrington says.

ExxonMobil has not revised its 2016 capex guidance of just over $23bn. "We provided guidance at the beginning of the year. Unless there is something materially different in our plans, we really do not change that guidance," vice-president of investor relations Jeff Woodbury says. But spending in the first six months of this year, at $10.3bn, suggests that the company is on course to come in below budget. It has kept a lid on spending because of a focus on capital efficiency, execution of projects and an ability to delay some of its investments. "In this down market, we can restructure them to capture additional value," Woodbury says.

ExxonMobil has started four new upstream projects this year and is on track to bring on stream six more by 2018, including the Hebron heavy oil field in eastern Canada. The company is sticking to its target to be cash flow neutral next year at oil prices as low as $40/bl. "I think the organisation is making some really good progress in reducing our costs and making sure that they are all focused on creating incremental margin," Woodbury says.

‘Disappointed in the performance'

The US majors' second-quarter results highlight the urgency of the drive to cut costs and investment. Chevron made a loss for the third consecutive quarter, driven by $2.8bn of impairment charges related to the underperforming 140,000 b/d Papa-Terra field in Brazil and other upstream assets. "Papa-Terra is one where we have been disappointed in the performance of this asset," upstream executive vice-president Jay Johnson says. "We are working with the operator to determine not only what is happening with the reservoir but also where we go from here."

Chevron's second-quarter upstream losses widened to $2.46bn from $2.22bn a year earlier, while its downstream profit fell to $1.28bn from $2.96bn. ExxonMobil made a $1.7bn profit in April-June, a 17-year low and down from $4.19bn a year earlier. Its upstream business made a profit of $294mn, an 86pc drop from a year earlier, while refining profits fell by 45pc to $825mn. The chemical division's profit was little changed at $1.22bn.