More belt-tightening ahead as Exxon,Chevron profits dive

NEW YORK — US oil giants Chevron and ExxonMobil have signalled further belt-tightening ahead as the industry responds to lower oil prices that slammed earnings in the second quarter.

Chevron indicated it was trimming 1,500 jobs as it cuts 2015 capital spending about $5 billion compared with last year. According to executives, further capital spending cuts are likely in 2016 and 2017.

"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," said Chevron Chief Executive John Watson.

ExxonMobil expects a "downward vector" on capital spending in 2015 compared with earlier forecasts, as it pushes efficiencies on contractors, said Vice President Jeff Woodbury. 

"What we are looking for always is to drive the cost structure down in the business," Woodbury said.

Both companies suffered from a drop in oil prices from more than $90 a barrel in the year-ago period 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 the Organisation of Petroleum Exporting Countries (OPEC) to cut crude output in response to the drop in prices.

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, net income for the second quarter fell by 52.3 per cent year-over-year to $4.2 billion.

The biggest US oil company's profit-leading upstream division, which explores for and produces crude oil, dived about 75 per cent to $2 billion due to lower oil prices.

However, a bright spot in this business was an increase in upstream output of 3.6 per cent to 4 million barrels of oil-equivalent per day, including an 11.9 per cent rise in oil output 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 per cent to $1.2 billion.

ExxonMobil spent 12.5 per cent less through the first half of 2015 at $16 billion compared with the 2014 period.

But Woodbury said ExxonMobil aimed to avoid layoffs in response to low oil prices and would take a "very measured approach to manage our head count." 

Chevron reported about a 90 per cent drop in profit to just $571 million following a large write-down on assets and charges related to project suspensions due to a downward revision in the company's long-term oil price. This drag was partially offset by surging earnings in the downstream business.

Chevron said the 1,500 job cuts will affect 24 units and were part of an effort to save $1 billion across its corporate-level operations.

"If a lower price environment persists for longer, you will see even more significant cost savings and even greater cuts in capital," said chief financial officer Pat Yarrington on a conference call with analysts.

Yarrington also sought to reassure investors of the company's commitment to a "competitive and growing dividend" after some observers questioned Chevron's ability to keep payouts high.

Chevron last announced a dividend hike in April 2014, when the payout was lifted to $1.07 per share from $1.00. 

Moves to keep the payout flat in 2015 so far are "prudent", said Yarrington, adding that the company has taken pride in delivering 27 straight years of dividend growth.

Chevron will raise the dividend "as soon as the financials really allow us to get there", she said. "It is our number-one priority."