Energy Firms Post Gusher Of Earnings -- WSJ

By Bradley Olson Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 29, 2017).

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The largest U.S. energy companies reported robust earnings on Friday, continuing a quarter in which the world's big oil firms have posted some of their strongest gains since a pronounced price crash began in 2014.

Exxon Mobil Corp. nearly doubled its second-quarter profit compared with a year ago, to $3.35 billion, and Chevron Corp. jacked up its bottom line to $1.45 billion.

The gains came even as oil prices fell again in the quarter, dipping below $50 a barrel, and questions about future demand continue to weigh on producers, underscoring the dramatic transition under way in the industry to curb ambitions, cut costs and focus on smaller-scale opportunities.

Friday's tallies echoed results at Royal Dutch Shell PLC, Norway's Statoil ASA and France's Total SA. Collectively, the five energy companies this year are off to their best start since 2014, generating excess cash and profits that outstrip any two consecutive quarters in the past two years.

They generated more than $30 billion in cash and managed to avoid sliding deeper into debt, an increasingly important barometer of an oil producer's ability to survive the crisis.

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In addition to cutting costs by tens of billions, many energy companies have reoriented their businesses toward projects that can be completed quickly and produce profits within a few years rather than after more than a decade of upfront, billion-dollar spending.

"For us to compete and win," Exxon Vice President Jeff Woodbury told analysts on a call, "we have got to be the lowest cost-of-supply producer out there."

While the sector's improved performance doesn't yet match precrash levels, it does back up executives who have told investors in the downturn that the largest Western producers can thrive in a lower-price era.

"The companies are at different stages of learning how to deal with this low-price environment," said Brian Youngberg, an energy analyst at Edward Jones. "They will need to remained disciplined with their spending or investors will shun them."

Oil prices have risen recently to two-month highs on momentum furthered by recent inventory declines. Market observers have long said a sustained reduction in the amount of oil being stored would point to a partial price recovery as it would indicate greater demand. U.S. prices this week settled above the $49 mark for the first time since May 30.

The push to a "short cycle" strategy has helped companies such as Exxon, Chevron and Shell prepare for a world in which prices don't return to $100 a barrel for many years, if ever.

Shell Chief Executive Ben van Beurden said Thursday that the company had adjusted to a world in which prices could remain "lower forever" due to the potential for declining demand.

While Exxon and Chevron don't share the view that falling oil demand is a threat to their business before 2040, the companies have nonetheless pivoted toward investments that pay off quickly, especially in the U.S.

Through 2020, the U.S. units of big oil companies such as Exxon are expected to grow by about 7% a year, adding about 800,000 barrels a day of oil and gas production, largely from fracking operations in West Texas and deep-water drilling in the Gulf of Mexico, according to Tudor Pickering Holt & Co.

One challenge is coaxing the same returns out of shorter-term projects that the companies enjoyed with high-price, multibillion-dollar developments. Both Chevron and Exxon lost money in their U.S. drilling operations in the quarter.

Chevron said its land in West Texas and New Mexico could be worth as much as $50 billion. The company's wells in that area -- one of the hottest for drilling in the world -- can bring a 30% return, even including all associated costs such as overhead, said Executive Vice President Jay Johnson.

"We continue to look for the next best development areas," he said Friday in a call with analysts. "We're using technology and the experience of others. And we are seeing continued improvement."

Exxon's second-quarter profit of $3.35 billion came to 78 cents a share; a year earlier, the company posted a profit of $1.7 billion, or 41 cents a share. Analysts polled by Thomson Reuters were expecting earnings of 84 cents a share in the latest period. Exxon shares fell 1.5% Friday, marking a nearly 12% decline for the year.

Chevron's profit of $1.45 billion compares with a year-earlier loss of $1.47 billion, stemming largely from asset write-downs. Chevron shares rose 1.9% Friday, but are off 8.1% this year.

Ezequiel Minaya contributed to this article.

Write to Bradley Olson at Bradley.Olson@wsj.com

(END) Dow Jones Newswires

July 29, 2017 02:47 ET (06:47 GMT)