Oil companies’ earnings drop on price volatility

THE plummeting crude oil prices are hitting hard on the profits of big International Oil Companies (IOCs).

For example, Cheveron, ConocoPhilips, Shell and Exxon Mobil posted disappointing earnings in their fourth quarter report for 2014 as a result of the declining crude oil prices.

The price of Organisation of Petroleum Exporting Countries (OPEC) basket of twelve crudes stood at $44.83 a barrel on Friday, compared with $43.88 the previous day,

Chevron saw its top and bottom line earnings results affected by the plunge in prices. Chevron reported both its fourth quarter earnings results and 2015 capital spending plan Friday morning and, in an echo of what competitor ConocoPhillips announced on Thursday, said that all are lower because of crumbling crude.

On a full-year basis, Chevron recorded $212 billion in 2014 revenue, down seven per cent compared to revenue reported in 2013. Full-year net income came in at $19.2 billion, a 10% decline compared to full-year net income for 2013 and a figure that resulted in full-year earnings of $10.14 per share. This earnings-per-share figure marks an 8.6% decline compared to earnings in 2013.

 “Our 2014 earnings were down from the previous year, largely due to the sharp decline in crude oil prices,” Chevron chairman and CEO John Watson said in a statement Friday morning. “Improved downstream results and higher gains on asset sales related to our divestment program partially offset the effect of lower crude prices.”

Also, Exxon Mobil on Monday reported a sharp drop in fourth-quarter revenue and profit because of declining oil prices.

The deep earnings decline for Exxon, the largest American oil and gas producer, was expected, with net income falling to $6.57 billion from $8.35 billion in the same quarter last year. Executives blamed lower commodity prices, but there were other troubling signs, especially the company’s decline in oil and gas production of 3.8 percent during the quarter. Both profit and revenue of $87.3 billion were down 21 percent from the year earlier.

The results were bolstered by profits from asset sales, a successful arbitration settlement from a past nationalization by Venezuela and other one-time special items. The company said it was cutting its quarterly share buybacks to $1 billion, from $3 billion, and while it did not give explicit new guidance on its investment plans for the year, it was clear that the company was trying to cut costs.

 “We’re probably in the early innings of this effort,” said Jeff Woodbury, vice president for investor relations, during a conference call. “More is to come in that area,” he added, referring to declining rig counts but also rig rental rates and other declining service costs.

Shell posted $2.9 billion in fourth-quarter earnings in 2013, excluding identified items and on a current cost of supply basis. That’s down 48 percent from $5.6 billion in the same quarter last year. It was the Anglo-Dutch company’s least profitable quarter in five years.

The company attributes the losses to expensive exploration drilling in the Arctic, security challenges in Nigeria, and technical issues at refineries. Shell has invested in North American shale, but those projects lost over $2 billion (excluding identified items) in 2013. It plans to sell $15 billion of its assets between 2014 and 2015 and will put its Arctic exploration on hold for 2014. 

 “We haven’t always made the right capital choices and we need to react more quickly to changes and opportunities in the industry environment,” Ben van Beurden, Shell’s new chief executive, said in a statement. “For all the parts that make up our business portfolio, be it existing assets or new projects, we need to scrutinize harder whether they are sufficiently attractive and resilient.”