Exxon Mobil Corp and Chevron Corp are criticizing the brakes on oil output, because these two companies plan for merged worldwide shut-ins of 800,000 barrels per day concerning plunging crude prices and fuel demand.
Both companies on Friday outlined deep cuts in investments within the Permian shale basin, the top U.S. oilfield where growth latterly made America the world’s top oil producer and a net exporter for the first time in decades. They each declared worldwide shut-ins of up to 400,000 barrels per day (bpd) this quarter due to lockdowns to combat the coronavirus pandemic.
Exxon and Chevron are sidelining Permian drilling equipment since the market began collapsing in March. U.S. crude prices have jumped nearly 70% this year to under $20 a barrel, and traded in negative territory on April 20 for the primary time ever.
Oil and gas output at both U.S. producers jumped in the first quarter with the companies competing to make 1 million barrels per day in the Permian. Then fuel demand fell almost a third because of the travel and business lockdowns, while a flood of Russian and Saudi oil hit the market once they abandoned production cuts.
The two oil majors spent heavily within the last two years to expand within the Permian. Shale production may be brought on faster than deepwater and other oil exploration projects but requires near-constant drilling to keep up output.
The company 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.
Both companies will slash expending budgets by 30% this year. Chevron reduced its capital spending budget to $14 billion and Exxon has set 2020 expending at $23 billion, the lowest in four years.
Even though their results topped Wall Street’s reduced estimates, Exxon shares fell 7% to $43.14 while Chevron dropped 2.8% to $89.44.
Chevron’s additional spending cuts will help it pay for its dividend and make it “a defensive energy holding and a relative safe haven in very stormy seas,” said Jennifer Rowland, an analyst with Edward Jones.
