CVX Chevron Corporation

By Christopher M. Matthews 

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 (February 1, 2020).

Exxon Mobil Corp. is still struggling to bolster its bottom line, nearly two years into a plan to substantially boost oil and gas production by spending more than rivals.

The Texas giant reported a 5% drop in fourth-quarter earnings Friday compared with the same period in 2018, the latest in a procession of energy companies posting declines amid low oil and gas prices.

The results would have looked worse if not for a one-time $3.7 billion gain from the sale of assets in Norway.

Exxon Chief Executive Darren Woods embarked on an audacious strategy in 2018 to increase spending to double profits and pump an additional one million barrels of oil and gas a day by 2025. So far, it hasn't yielded better results.

The company's full-year profit was $14.3 billion, down 31% from $20.8 billion the year before. Capital expenditures, meanwhile, were up 20% to $31 billion from nearly $26 billion in 2018. Revenue was down nearly 9%, from $290 billion in 2018 to about $265 billion last year.

The profit was Exxon's third lowest this century, according to FactSet, and the lowest since 2016, when it fell to $7.84 billion as the industry suffered a world-wide price crash.

Chevron Corp. on Friday reported a loss of $6.61 billion for the fourth quarter as results were weighed down by a more than $10 billion write-down of U.S. shale properties and other assets that the company had announced last month. Royal Dutch Shell PLC on Thursday reported a nearly 50% drop in quarterly profit, and its shares dropped after it disclosed that it would ratchet up divestments and slow its share-buyback program.

Investors -- who have soured on fossil fuel companies in general after several years of lackluster returns and growing concerns about climate-change risks -- have reacted coolly to Exxon's growth strategy. The company's shares fell 4.1% on Friday to their lowest levels since 2010. The drop was the largest decline in nearly two years.

Chevron shares were down more than 4%.

Exxon's spending has set it apart from competitors such as Chevron and Shell, which have been more restrained with capital expenditures. But none of the big publicly traded oil companies have fared especially well in recent months, as a world-wide glut of crude and natural gas and concerns about demand weigh on commodity prices.

Mr. Woods said Friday that while the industry faces "extremely challenging market conditions," Exxon wouldn't cut its spending because it is focused on long-term supply and demand.

"We believe strongly that investing in the trough of this cycle has some real advantages," Mr. Woods said on a call with investors.

The large integrated companies are also being hit by weaker margins in their chemicals and refining businesses due to excess supply as well as higher levels of plant outages.

For Exxon investors, the question is whether 2020 will represent a turn in the company's fortunes, as one of the reasons for its spending surge, an oil megaproject in Guyana, turns positive. The Guyana project began producing oil in December. This week, Exxon raised its estimate of recoverable oil there to eight billion barrels, up from six billion barrels.

Unlike Chevron, which has responded to Wall Street's calls for austerity, Exxon is "marching to its own drum," said Mark Stoeckle, chief executive of Adams Funds, which owns about $110 million in Exxon shares and $82 million in Chevron.

"Even though it appears the market has said 'we don't want you to outspend, we want you to do dividends, we want you to do buybacks,' Exxon is saying 'we take a longer view than anybody, if you don't like it, then sell the stock," Mr. Stoeckle said.

Mr. Woods had pledged to increase Exxon's output, long hovering around 4 million barrels a day, to five million by increasing annual spending between $4 billion to $6 billion to top $30 billion and focusing on a handful of key projects.

Some investors have regarded the plan with skepticism: Exxon has been pledging to produce more oil and gas for years, but its output has remained roughly the same since its merger with Mobil Corp. in 1999.

The investments have come during a period of lower U.S. oil prices. The West Texas Intermediate benchmark has mostly hovered around $50 to $60 a barrel since Mr. Woods took over in 2017 and traded around $52 Friday. The benchmark was down 1.1% Friday to $51.56.

In addition to Guyana, Exxon has markedly outspent competitors in the oil-rich Permian Basin of West Texas and New Mexico, adding hundreds of wells as other companies slash shale-drilling activity there.

Exxon's investment in the Permian has boosted production over the past two years, but at a heavy cost. Production from the company's U.S. operations, to which the Permian is the largest contributor of oil, increased to 646,000 barrels of oil a day in 2019, up from 551,000 barrels in 2018. But U.S. spending also increased to $11.6 billion, up from $7.6 billion in 2018.

Exxon's chemical and refining units reported about $2.9 billion in combined profits, their lowest return in years, as the company contended with increased maintenance costs. Earnings from those units have topped $7 billion since 2013.

Exxon hasn't generated enough cash this year to cover new expenses and dividends, and other major oil companies have struggled to make the payments from their own cash flows, according to FactSet data and company disclosures. Exxon increased its annual dividend in the first quarter, a step the company has taken for 37 years in a row.

Dave Sebastian contributed to this article

Write to Christopher M. Matthews at christopher.matthews@wsj.com

(END) Dow Jones Newswires

February 01, 2020 02:47 ET (07:47 GMT)

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