Big Oil Companies Recover as Prices Rebound

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Big oil companies returned to profitability during the first quarter as they recovered from the unprecedented destruction of oil-and-gas demand wrought by the coronavirus pandemic.

Exxon Mobil Corp.

reported $2.7 billion in net income Friday, its first quarterly profit since the pandemic erupted last spring, while

Chevron Corp.

reported $1.4 billion in first-quarter profit. The results were boosted by rising oil prices during the first months of 2021, as countries around the world soften coronavirus quarantines.

The largest European oil companies,

BP

PLC,

Royal Dutch Shell

PLC and

Total

SE, all reported profits earlier in the week after enduring huge losses last year.

“That recovery, which we had anticipated happening at some point in time, is happening sooner than we anticipated,” Exxon Chief Executive

Darren Woods

said in an interview Friday. “As economies are reopening and rebounding quicker, in some places, than expected, we are seeing a demand response.”

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Oil companies endured one of their worst years on record in 2020, as Covid-19 lockdowns choked off demand for oil and gas as road and air traffic fell precipitously. Exxon reported its first annual loss in modern history in 2020 of about $22 billion.

But cautious optimism has been mounting that global economic activity could return to pre-pandemic levels later this year as vaccines become more widely available around the world.

Chevron Chief Financial Officer

Pierre Breber

said that demand for gasoline and diesel was nearly back to pre-pandemic levels, and that jet fuel is the last remaining overhang, with strong signs that domestic air travel in the U.S. is picking up.

“As we look forward, the next couple of quarters look very good,” Mr. Breber said in an interview. “We feel good about our ability to generate cash.”

Chevron’s net income was down about 62% from the same quarter last year, but was a substantial increase from a $665 million loss in the previous quarter. Exxon’s $2.7 billion profit compared with a $610 million loss a year ago. BP’s profit more than tripled from the previous quarter to nearly $4.7 billion, and Shell reported a profit of almost $5.7 billion.

Exxon Mobil posted its first quarterly profit since the coronavirus pandemic erupted last spring.



Photo:

sonali paul/Reuters

Share prices for the world’s largest energy companies have moved in tandem with oil prices that have rebounded markedly in recent months. U.S. oil prices are up about 77% over the past six months, while the shares of Exxon, Chevron, BP and Shell are collectively up about 60%.

On Thursday, U.S. oil prices neared a six-week high of about $65 a barrel but fell around 2.6% Friday as traders eyed a build in crude and gasoline stockpiles. The share prices of Exxon, Chevron, BP and Shell were collectively down nearly 2% Friday.

The optimism about oil and gas demand rebounding is being tempered by concerns about rapidly rising Covid-19 case numbers in India and South America, said

Bjornar Tonhaugen,

an analyst at Rystad Energy. Reduced economic activity in India alone may sap as much as 900,000 barrels of oil a day from global demand, according to Rystad.

“For the moment optimism is helping prices, but every trader’s eyes are on India,” Mr. Tonhaugen said. “The oil bulls are out again but it’s doubtful that they are having a confident and calm sleep.”

In response to growing profits, Chevron, BP and Shell boosted their payouts to investors. On Wednesday, Chevron increased its quarterly dividend by 4%, while Shell also raised its dividend 4%, the second increase since slashing it last year. BP said it would buy back $500 million of shares. Total and Exxon held their dividends flat.

The weeklong freeze in Texas that left millions without power in February affected profits for many of the companies, which both produce oil in the state and own plants there to convert the hydrocarbons into fuels and plastics.

Chevron’s refining and chemical units reported $5 million in profits, down from $1.1 billion a year ago, which Chevron CEO

Mike Wirth

attributed to the February storm and continuing impact of the pandemic. In total, the storm cut about $300 million from its profit, Chevron said.

Exxon said the extreme weather reduced earnings by nearly $600 million. Meanwhile, analysts attributed the strong performance of BP’s trading unit to its ability to capitalize on substantial price fluctuations during the storm.

Despite the improving conditions, Chevron has pledged to keep capital expenditures austere. Mr. Wirth said capital spending decreased 43% from last year during the quarter, citing its corporate restructuring last year that saw as much as 15% of its workforce laid off. Exxon also has pledged fiscal restraint, saying its plan to cut annual capital spending by about 30% remains unchanged.

Oil Giants During the Pandemic

Some investors are deeply skeptical of the industry notwithstanding climbing commodity prices, according to

Paul Sankey,

an independent oil and gas analyst. Most of the companies’ share prices are still trading below their pre-pandemic levels as investors evaluate the firms’ plans to navigate tightening global regulations on carbon emissions.

Earlier this month, President Biden pledged to cut U.S. emissions by about 50% from 2005 levels by 2030, targeting greenhouse gases from power plants, buildings and the transportation sector. Mr. Woods said Friday that Exxon is engaging with officials on climate policy and has urged the government to set a price on carbon, which it says would spur investment in carbon-reducing technologies.

Mr. Sankey said the industry delivered poor results for years from their core oil business before the pandemic, leaving some to doubt they can reap profits from renewable energy or technologies to reduce carbon emissions, which some of the companies have promised to do.

“Their track record is not good enough for them to get into a new theme, because they did so poorly on the old one,” Mr. Sankey said.

Write to Christopher M. Matthews at [email protected]

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