Exxon and Chevron Show Why Investors Want to Stay Away

Big oil no longer rules the economy, and the price of oil no longer rules either the economy or the stock market. What used to be the largest companies in America are now tiny compared to how much influence they used to have. There is just one problem with bashing these companies: they still will be essential and daily components for most of the world for many years to come.

Friday morning brought key earnings report from Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX). The reports could have been a lot worse, but there is also an underlying theme that big oil companies are not exactly in the best shape to deal with the coming decade.

There is something else to consider about the long-term views. It has become very difficult for investors to justify the case for long-term viability. If that seems like a farce, note that the price of crude oil has fallen to under $36 per barrel. Oil has now busted under a double-bottom chart under $37, and this appears to be the lowest pricing on the current equivalent contract since May.

Exxon reported a loss of $680 million for the third quarter of 2020. This translated to earnings of −$0.15 per share, or −$0.18 per share on an adjusted basis, on revenue of $46.2 billion. That marks the third straight quarter of losses for the oil and gas giant. Exxon reported earnings of $0.67 per share and revenue of $65 billion a year ago.

While the earnings report can be picked apart, a lot of forward-looking issues will play a role in the future, rather than just looking back when energy prices were so low. Exxon is reevaluating its international portfolio of operations. It is cutting its 2021 capital program from about $23 billion to a range of $16 billion to $19 billion. Exxon also was recently in the news concerning nearly 2,000 layoffs.

Exxon’s oil-equivalent production of 3.7 million barrels per day was actually up 1% from the second quarter of 2020, and the company noted that its liquids production increased by 2%, while natural gas volumes decreased 1%.

Chevron reported a loss of $207 million in third-quarter 2020, down from a profit of $2.58 billion for the same quarter in 2019. Chevron’s report had −$0.12 in earnings per share, and its $24 billion in revenue was down from $35 billion in the year-ago period.

Chevron is focused on controlling what it can control. According to the company, that includes safe operations, capital discipline and cost containment. To show just how weak this all is: capital expenditures were down 48% and operating expenses were down 12% from a year ago.

Perhaps the only good news in Chevron’s report is that the adjusted loss of $0.11 in the third quarter was better than the −$0.27 EPS consensus estimate from Refinitiv.

Chevron also showed that even its downstream production is suffering. Refinery crude oil input fell 17% to 820,000 barrels per day from a year ago, while the refined product sales of 1.00 million barrels per day were down 22%. The company also noted that net oil-equivalent production of 1.85 million barrels per day was 247,000 barrels per day lower than a year ago.

One issue driving investment dollars at this point is that both companies are focused on holding their balance sheets to be as strong as they can be in hard times, and they both still want to keep their dividends steady.

Darren W. Woods, board chair and chief executive officer of Exxon, said:

We remain confident in our long-term strategy and the fundamentals of our business, and are taking the necessary actions to preserve value while protecting the balance sheet and dividend. We are on pace to achieve our 2020 cost-reduction targets and are progressing additional savings next year as we manage through this unprecedented down cycle.

Michael K. Wirth, Chevron’s chairperson and chief executive officer, said:

The world’s economy continues to operate below pre-pandemic levels, impacting demand for our products which are closely linked to economic activity… Our actions are guided by our long-standing financial priorities: to protect the dividend, invest for long term value and maintain a strong balance sheet.

Chevron stock traded down 23 cents a share to $68.57 on Friday, in a 52-week range of $51.60 to $122.94.

Exxon Mobil stock was down 39 cents to $32.58. Its 52-week range is $30.11 to $73.12.

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