Exxon, Chevron results linked to oil price, not cost cuts

Published October 26, 2017
Reuters

Oil prices jumped about 2 percent on Friday, with global benchmark Brent crude rising above $60 per barrel, on support among the world's top producers for extending a deal to rein in output and as the dollar retreated from three-month peaks.

Ahead of OPEC's policy meeting on Nov. 30, Saudi Arabia and Russia declared their support for extending an OPEC-led deal to cut supplies for another nine months, the Organization of the Petroleum Exporting Countries' secretary general said. The pact currently runs to March 2018.

Brent futures rose $1.14, or 1.9 percent, to settle at $60.44 a barrel after hittingRising oil and natural gas prices boosted third-quarter profits at Exxon Mobil Corp and Chevron Corp by about 50 percent, underscoring how reliant they remain on commodity markets for their financial futures than better technology or cost cuts.

Despite deep capital spending cuts and a refocusing on projects that can generate faster paybacks in recent years, the results on Friday showed the pair, neither of whom hedge oil output, are still at the mercy of price gyrations.

Exxon and Chevron have pointed to aggressive plans for boosting low-cost U.S. shale production. But in recent quarters total output at both has atrophied and shale is unlikely to deliver a marked lift until the next decade, based on corporate projections.

"Both are trying to be disciplined and show growth," said Brian Youngberg, an oil industry analyst with Edward Jones. "But it's a little bit of a transition, especially as they're trying to increase shale (output)."

The pair reported the same day as French rival Total SA posted a 29 percent jump in its third-quarter net profit as project ramp-ups and new investments lifted production.

Exxon, which reported a better-than-expected quarterly, said its Permian oil production will grow 45 percent each year through 2020, to more than 400,000 barrels per day. The company also has a large shale position in North Dakota's Bakken shale formation.

Still, Exxon said higher prices contributed $860 million to its earnings while volume increases added only $20 million to the latest quarter's exploration profit. Exxon's total output in the quarter was the lowest this year.

Also on Friday Exxon, part of a consortium with Norway's Statoil and Portugal's Petrogal, a unit of Galp Energia , won one of four blocks in Brazil's coveted pre-salt oil region in an auction.

Exxon stock edged up 0.1 percent to $83.53 on Friday afternoon.

At Chevron, a writedown of its Bangladesh operations and a drop in U.S. production weighed on results, which missed Wall Street estimates by a wide margin.

Chevron's stock slid 4.5 percent to $113.15, a drop that surprised Chief Executive Officer John Watson, he said during an investors conference call.

The San Ramon, California, company, which has been one of the Permian's largest acreage holders since the 1930s, has only recently begun to aggressively develop its oil reserves there. Watson told Reuters earlier this year the Permian is "very important" in the company's portfolio.

While the company has yet to forecast 2018 production goals for the Permian, Watson said on Friday that Chevron will grow aggressively in the region.

Chevron's overall average daily output was up 8 percent over a year ago, but that was largely due to the start of giant natural-gas projects. U.S. oil production at Chevron fell overall, as aging field output offset a jump in Permian production.

The loss in U.S. oil production narrowed sharply as the price received for its crude rose 13.5 percent over a year earlier. (Reporting by Ernest Scheyder; Editing by Jeffrey Benkoe) a session peak of $60.53, the highest since July 2015 and more than 35 percent above 2017 lows touched in June.

U.S. West Texas Intermediate crude oil (WTI) ended the session up $1.26, or 2.4 percent, at $53.90 after reaching a session peak of $53.98 a barrel, the highest since early March.

For the week, Brent was 4.6 percent higher, notching its third straight weekly gain. U.S. crude rose 4.7 percent for the week.

U.S. crude's gains have lagged the global benchmark amid rising domestic output.

U.S. drillers added one oil rig in the week to Oct. 27, but the rig count fell by 13 for the month, the biggest such decline since May 2016, data showed on Friday.

Oil prices have been hovering near their highest levels for this year amid signs of a tightening market, renewed support this week of an extension of production cuts and tensions in Iraq.

However, the announcement on Friday of a ceasefire between Iraqi forces and the Peshmerga from the country's autonomous northern Kurdish region eased some concerns.

"What is interesting is that the pop in WTI futures moved above the Sept. 28 high," said David Thompson, executive vice president at Powerhouse, an energy-specialized commodities broker in Washington.

"So even though the dollar is giving back some of its move, crude may now be trading off of a new driver, the technical breakthrough to a new high."

The dollar trimmed its earlier gains versus a basket of currencies following a Bloomberg report that U.S. President Donald Trump is leaning toward Federal Reserve Governor Jerome Powell as his pick to head the U.S. central bank.

A weaker dollar makes greenback-denominated commodities, including oil, cheaper for holders of other currencies.

"I think the combination of short-covering and Chevron and Exxon both missing their production guidance for the third quarter has resulted in the market strength today," said Scott Shelton, energy futures broker with ICAP in Durham, North Carolina.

TransCanada Corp said in a filing on Thursday that it is seeking to raise the temporary discounted spot rate for light crude on its 700,000 barrel-per-day Marketlink pipeline. That sent WTI's discount to global marker Brent <WTCLc1-LCOc1> to the widest in a month.

OPEC and other major producers including Russia have pledged to reduce production by around 1.8 million barrels per day (bpd) to drain a global supply glut.

"If OPEC and their non-OPEC partners can agree to extend their production curtailments through 2018, then we estimate the oil market will remain in modest under-supply until 2019," U.S. investment bank Jefferies said.

Rising U.S. crude production remains an issue for OPEC as it strives to clear a global supply overhang.

Government data showed that U.S. crude production rose 1.1 million bpd last week to 9.5 million bpd after a decline due to Hurricane Nate, while U.S. oil exports hit a new record four-week average of 1.7 million bpd.

(Additional reporting by Christopher Johnson, Julia Payne and Dmitry Zdhannikov in London, Jane Chung in Seoul and Henning Gloystein in Singapore; Editing by Marguerita Choy and Susan Thomas)