Page 5 - NorthAmOil Week 18

NorthAmOil COMMENTARY NorthAmOil
The super-major anticipates shutting in 100,000 barrels of oil equivalent per day (boepd), according to Woods, and reducing its rig count in the Permian by 75% over the course of the year, ending 2020 with around 15 rigs.
Despite the headwinds the industry – and ExxonMobil – is facing, Woods said the com- pany remained committed to maintaining its dividend. This is, once again, in contrast with Shell, which announced last week that it was cutting its dividend for the first time since 1945. ExxonMobil, meanwhile, lists preserving cash for its dividend as a capital allocation priority. Nonetheless, the company did opt to freeze its dividend for the first time in 13 years in response to oil prices falling to multi-decade lows.
Second cut
Chevron, for its part, posted an increased first-quarter profit, beating Wall Street expecta- tions. The super-major achieved a net profit of $3.6bn, up from $2.6bn in the same quarter of 2019. The company attributed the increase pri- marily to downstream margins and higher pro- duction in the Permian Basin. However, while Chevron’s CEO, Mike Wirth, said his company had been “well positioned” as the crisis started, thanks to its balance sheet, flexible capital pro- gramme and low breakeven price, he is proceed- ing with caution.
Chevron stated alongside its earnings that it was reducing its capex budget for 2020 by another $2bn, to $14bn. The company pre- viously cut its budget from $20bn to $16bn in March. It also estimates that 2020 operating costs will decrease by $1bn following its previously announced suspension of share repurchases and the completion of additional asset sales. In Chev- ron’s earnings call, the company noted that it had
closed the sale of its interests in Azerbaijan and Colombia in April, resulting in almost $1.5bn in proceeds before tax.
Similarly to ExxonMobil’s Woods, Wirth has also reiterated his commitment to maintaining his company’s dividend.
In another parallel with ExxonMobil, Chev- ron is also scaling back activity in the Permian. The company had previously been targeting production of 600,000 boepd from the basin by the end of the year, but has scaled this back to 475,000 boepd. This marks a decline from 580,000 boepd, which Chevron achieved in the Permian in the first quarter of the year. The com- pany’s rig count in the basin has already fallen from 17 to five, and Wirth has warned that more cuts may be required if the market downturn worsens.
What next?
Despite the unprecedented challenges faced by the oil and gas industry currently, ExxonMobil is cautiously optimistic about demand recovering. Woods noted during the company’s earnings call that there were already signs of recovery in both China and the US. He expects April to be the month in which the COVID-19 impact on demand is most pronounced.
However, given that oil prices only collapsed towards the end of the first quarter, second-quar- ter results could yet be worse, especially given the brief fall of West Texas Intermediate (WTI) prices into negative territory in April.
Despite Woods’ optimism, if demand is slow to recover, this will put further downward pres- sure on crude prices, and thus on producers. If the price environment worsens significantly, further revisions – whether to capex budgets, activity plans or dividends – may be required.™
Given that oil prices only collapsed towards the end of the first quarter, second- quarter results could yet be worse.
ExxonMobil’s CEO, Darren Woods, has expressed cautious optimism over demand recovery.
Week 18 07•May•2020 w w w . N E W S B A S E . c o m
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