Exxon Mobil (XOM) reported a lower loss than expected but guided 2021 investment sharply lower and warned of a massive possible writedown as it looks to protect its dividend. Chevron (CVX) reported mixed results but had a surprise profit. Exxon stock fell while Chevron stock rose.
Exxon reported a loss of 18 cents per share vs. profit of 68 cents per share in the year-ago quarter. Wall Street was expecting a loss of 28 cents per share. Revenue fell 29% to $46.2 billion, falling short of Zacks Investment Research estimates for $49.5 billion.
Oil-equivalent production fell 3.7% to 3.7 million barrels per day. The upstream business lost $1.5 billion after earning $8.3 billion a year ago. Downstream income collapsed 91% to $134 million. Chemical income rose 34% to $1.27 billion.
Permian Basis production averaged 401,000 oil-equivalent barrels per day and recovered fully from the prior quarter’s curbs. For the year, Exxon sees Permian output at 360,000, about a third higher than last year.
During the earnings call, Exxon officials said the company wasn’t canceling any projects that were in execution or in the funding process.
Shares fell 1.5% to 32.47 on the stock market today. Exxon stock is rebounding after approaching March lows while its 200-day and 50-day lines continue to drift lower, according to MarketSmith chart analysis.
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Exxon Stock Dividend In Question
Also on the call, attention turned to the sustainability of the company’s dividend, which will remain at 87 cents per share in Q4 but requires more borrowing to fund as oil prices stay low.
While 2020 will be the first year since 1982 that the payout will not see an increase, Exxon warned Friday it could book $25 billion-$30 billion in writedowns on natural gas assets.
To protect its payout, the company is cutting spending and jobs. Exxon sees 2021 capital program at $16 billion-$19 billion, down from the 2020 target of $23 billion. Exxon had already cut investment by $10 billion so far this year.
And on Thursday, the company said it will reduce its U.S. staff by 1,900 after announcing 1,600 in cuts to its European headcount earlier this month. Overall, it plans to eliminate about 14,000 positions.
Exxon is also looking at a “modest amount of assets sales” in 2021 and is “in active discussions” with “bids coming in,” said CFO Andrew Swiger.
Still, analysts pressed him about why the company is pursuing dividend payouts when it can’t afford them.
“As I said, we put the plan together for 2021 based on our best assessment of the market,” he replied. ” It has some contingency on it, and flexibility on it. Where we to run out of that contingency, obviously we have to look to pull the next lever.”
Exxon had a cash-flow shortfall of over $3 billion after capital spending and dividend payments, according to Edward Jones analyst Jennifer Rowland. So even with spending cuts, she sees cash outflows through next year.
“This calls into question how long the company can continue to use debt to fund its dividend, and thus we continue to view the dividend as at risk of being cut in late 2021,” Rowland said in a note.
In an interview, she added later that 2021 could still be a challenging year while Exxon hopes for a full recovery from the pandemic. “They probably need to address the dividend next year. Time is on their side though and they don’t want to do anything rash.”
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Chevron reported a 93% drop in earnings to 11 cents per share. Analysts were expecting a loss of 29 cents per share. Revenue fell 32% to $24.45 billion, under Wall Street views for $27.3 billion.
Net oil-equivalent production fell 7% to 2.83 million barrels per day. Chevron slashed its capital spending by 48% and cut operating expenses by 12%.
U.S. upstream earnings plunged 84% to $116 million. International upstream profit tumbled 94% to $119 million. U.S. downstream operations earnings fell 64% to $141 million.
Chevron shares rose 1.4% to 69.74 Friday.
Chevron closed its deal to buy Noble Energy earlier this month, expanding its shale operations. The company has invested heavily in the Permian Basin ahead of the coronavirus pandemic and oil price collapse.
The company also signed an agreement in October to sell its Appalachia natural gas business.
Chevron has also been active overseas. In August, Chevron was among the energy stocks that announced agreements that are worth up to $8 billion with the Iraqi government. The oil giant approved a framework for exclusive negotiating for an exploration, development, and production contract in a major oil field in the Dhi Qar Province.
On Thursday, Chevron maintained its quarterly dividend at $1.29, which was increased earlier this year. The oil major isn’t seeing the same pressure on its dividend as peer Exxon.
“Importantly, Chevron generated enough cash flow to cover its capital spending and had only a modest deficit after funding its dividend,” Rowland said in a note.
Meanwhile, Royal Dutch Shell (RDSA) raised its dividend 4% to the equivalent of about 33 cents per U.S.-listed share after reporting Q3 profit that beat expectations Thursday. But the European oil major had cut its dividend in April, so the increase brings the dividend to just a third of its 2019 payout.
Follow Gillian Rich on Twitter @IBD_GRich for energy news and more.
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