HOUSTON (Reuters) – Exxon Mobil Corp and Chevron Corp are slamming the brakes on U.S. shale oil production at a time when crude prices and fuel demand have plunged due to global lockdowns to fight the coronavirus pandemic.
Both companies on Friday outlined deep cuts in investments in the Permian shale basin, the top U.S. oilfield where growth in recent years made America the world’s top oil producer and a net exporter for the first time in decades. The two top U.S. oil producers, each announced global shut-ins of up to 400,000 barrels per day (bpd) this quarter.
They have been rapidly sidelining Permian drilling equipment since the market started crashing in March. U.S. crude prices have plunged nearly 70% this year, and actually settled in negative territory on April 20 for the first time ever.
Before that, oil and gas output at both U.S. producers rose in the first quarter with the companies racing to produce 1 million barrels per day in the Permian. Then fuel demand sank nearly a third this year due to travel and business lockdowns, while a flood of Russian and Saudi oil hit the market when those countries abandoned production cuts.
“We would intend to bring activity back to the Permian when we see prices recover,” said Chevron Chief Financial Officer Pierre Breber in an interview.
The two oil majors spent heavily in the last two years to expand in the Permian. Shale production can be brought on faster than deepwater and other oil exploration projects but requires near-constant drilling to maintain output.
Exxon’s biggest cuts will come in the Permian, “where the short-cycle investments are more readily adjusted,” said Exxon Chief Executive Officer Darren Woods. He added that because shale wells produce big volumes at first and then decline rapidly, it is “beneficial in long term” to make sure “we’re bringing those high production rates into a market that’s more conducive.”
Exxon posted a $610 million first-quarter loss, its first quarterly loss in three decades, on a nearly $3 billion inventory writedown reflecting lower margins and prices. Chevron posted a $3.6 billion profit on asset sales and improved refining results, and also said it would further reduce spending this year.
(For a graphic on Exxon’s earnings, click here: tmsnrt.rs/3aTTnrp)
Both companies will slash spending budgets by 30% this year. Chevron cut its capital spending budget to $14 billion and Exxon has set 2020 spending at $23 billion, the lowest in four years.
Even though their results topped Wall Street’s reduced estimates, Exxon shares fell 6% at $43.56 while Chevron dropped 4.8% to $87.50.
U.S. crude futures have recovered a bit since settling in negative territory on April 20, but the current price of around $19 per barrel remains below the cost of production for many.
Both Chevron and Exxon maintained their quarterly dividends.
Other oil majors are also slashing investments and seeking ways to conserve cash. Royal Dutch Shell cut its dividend for the first time since World War II and reported first-quarter profits down nearly half compared to a year-ago. BP Plc’s first-quarter profit tumbled by two-thirds and its debt climbed to its highest on record.
Reporting by Jennifer Hiller; Editing by David Gregorio