Lower oil prices hammered earnings of US petroleum giants ExxonMobil and Chevron Friday, adding to the industry’s woes amid its worst downturn since the late 1990s.
ExxonMobil, the biggest US oil company, said second-quarter profits fell by 52.3 percent year-over-year to $ 4.2 billion as it reported a loss in its US exploration and production division.
The carnage was even worse at Chevron (Swiss: CVX.SW – news) , which reported about a 90 percent drop in profits to just $ 571 million and pledged a tough line on expenses.
“Second-quarter financial results were weak, reflecting a crude price decline of nearly 50 percent from a year ago,” said Chevron chief executive John Watson.
“We’re getting our cost structure down, through renegotiations across the supply chain and by sizing our contractor and employee workforce to reflect lower activity levels going forward.”
The big earnings declines came on the heels of a drop in oil prices from the year-ago period, from more than $ 90 a barrel to a range of $ 45-$ 60 a barrel throughout the quarter.
Factors driving the tumble in oil prices include the US shale production boom, lower economic growth in China and the resistance of key OPEC producers to cut output in response to the drop in prices.
The latest drag on prices is the nuclear accord between Iran and major powers, which is expected to add new oil to the oversupplied market some time after 2015.
Major industry figures including BP chief executive Bob Dudley and ExxonMobil chief executive Rex Tillerson have warned that oil prices could be depressed for at least a few more years.
– Cutting back –
At ExxonMobil, earnings in its profit-leading upstream division, which explores for and produces crude oil, dived about 75 percent to $ 2.0 billion due to lower oil prices.
However, a bright spot in this business was an increase in upstream output of 3.6 percent to 2.3 million barrels a day.
ExxonMobil’s results were boosted by higher profits in both downstream and chemicals, which are based in part on crude oil as an input. Earnings in downstream more than doubled to $ 1.5 billion, while profits in chemicals rose 48.1 percent to $ 1.2 billion.
At Chevron, the upstream business suffered a loss of $ 2.2 billion following a large writedown on assets and charges related to project suspensions. This drag was partially offset by surging earnings in the downstream business.
In response to lower crude prices, oil companies have cut back on drilling, with ExxonMobil spending 12.5 percent less through the first half of 2015 at $ 16 billion compared with the 2014 period.
On Thursday, smaller US rival ConocoPhillips (NYSE: COP – news) announced it would cut its 2015 capital budget for the third time in eight months as it reported a loss of $ 179 million in the second quarter.
“We continue to deliver on our operational milestones while positioning the company for a period of lower, more volatile prices,” said ConocoPhillips chief executive Ryan Lance.
The industry is also turning to job cuts.
Chevron said Friday that it was trimming 1,500 jobs, citing business pressures “in light of the current market environment.” On Thursday, Royal Dutch Shell (Xetra: R6C1.DE – news) , announced plans to slash its headcount by 6,500.
The downturn has also raised speculation that oil majors might cut their dividend, a route taken by US shale producer Chesapeake Energy (Other OTC: CHKDJ – news) .
A note from 24/7 Wall Street Friday questioned whether Chevron would be able to maintain its divided “with such poor earnings.”
Credit Suisse (NYSE: CS – news) , in a note previewing earnings, also spotlighted Chevron as a potential concern, but said the oil giant “has the balance sheet to get to the other side” of the industry downturn if it successfully ramps up a pair of major projects in Australia.
In morning trade, Chevron was down 4.3 percent at $ 89.07, while ExxonMobil stood at $ 79.38, down 4.4 percent.
