The slump in oil and natural gas prices since last summer has driven the American production operations of the world’s largest oil companies into losses.
ExxonMobil and ConocoPhillips of the US on Thursday reported that they lost money on oil and gas production in their home country in the first quarter. Meanwhile, Royal Dutch Shell disclosed a $1.1bn loss at its upstream exploration and production business in the Americas, and suggested that came mostly from its shale oil and gas operations.
Statoil, Norway’s national oil company, reported a loss from its international upstream operations, which include the US and Canada, and a writedown of about $5.5bn on the value of its North American assets, including shale oil and gas reserves and offshore fields in the Gulf of Mexico.
The figures show how the profitability of North American production, which is relatively high cost compared to oil from other areas including the Middle East, has been hit particularly hard by the fall in crude prices. Natural gas prices have also fallen more sharply in North America than in the rest of the world.
Simon Henry, Shell’s chief financial officer, told analysts the company’s deep water production and heavy oil in the Americas, including the Canadian oil sands, were “about break even”, excluding currency effects.
However, he said Shell’s North American shale oil and gas operations faced a “challenge” from low selling prices. “I think it’s fair to say everybody is showing either a loss in the Americas or very close,” he added.
BP on Tuesday reported a $545m loss on its US production business in the first quarter.
Irene Himona, an analyst at Société Générale, said pricing was “very disadvantageous” for international oil companies’ US operations.
“No one’s cost structure can be covered” by gas prices at current levels, she added.
Exxon, the world’s largest private sector oil group, reported a 46 per cent drop in its earnings to $4.94bn during the three months to March 31, including a $52m loss from oil and gas production in the US.
It sold its US crude for an average of $42.20 per barrel in the first quarter, less than half its realised price of $93.18 per barrel during the same period last year. This reflected how crude was trading at six-year lows in early 2015.
The impact of weaker oil and gas prices was offset by Exxon’s downstream refining business, which reported that earnings more than doubled, to $1.67bn.
Rex Tillerson, Exxon’s chief executive, hailed the group’s “balanced portfolio”, and said it was focusing on long-term value, “regardless of current market conditions”. Its earnings per share were down 44 per cent at $1.17.
The company on Wednesday announced a 6 per cent increase in its quarterly dividend to 73 cents.
Shell, Europe’s largest oil group, reported a 56 per cent drop in earnings to $3.2bn, excluding one-off items.
Drop in Exxon earnings to $4.94bn during the three months to March 31
Its upstream profit fell to just $675m, from $5.7bn a year ago, a decline of 88 per cent, and including a loss of $1.09bn in the Americas. That was offset by a 68 per cent jump in earnings from refining and chemicals, to $2.65bn.
Conoco, which spun off its refining, chemicals and pipeline business as Phillips 66 in 2012, reported an 87 per cent drop in earnings per share to 22 cents.
It made an underlying loss of $222m, excluding one-off items such as tax benefits, with a $243m loss from its US operations.
Ryan Lance, Conoco’s chief executive, said the fall in prices was a “test” for the industry, and the company was focused on factors that it could control, including production growth and cost reductions.
Conoco reported a 12 per cent drop in underlying operating costs compared to the first quarter of 2014.
Other companies also said they were cutting costs. Mr Henry said Shell aimed to “take the cost out forever . . . not just temporarily”.
Statoil said it was writing down the value of its assets in the US and Canada as a result of changes in the company’s long-term economic assumptions.
Eldar Sætre, its chief executive, said: “We take a more cautious view due to the uncertainty in the commodity markets.”
However, he added: “The assets can be improved significantly …and I am very optimistic about the future.”
Further writedowns in US assets were possible, said Mr Sætre, but equally likely was that their value would appreciate. The company expects the price of Brent crude, which was trading at $66 on Thursday, will rise to $80 by 2018.
First-quarter losses almost triple at Pemex
Pemex on Thursday reported that its first quarter net loss this year almost tripled to 100.6bn pesos ($6.4bn) compared to one year ago, hit by lower production, falling crude prices and foreign exchange losses, writes Jude Webber in Mexico City.
It was the Mexican state-controlled company’s 10th consecutive quarterly loss, and helps explain why the government is introducing sweeping energy reform that will open the country’s oil and gas prospects to private investment for the first time since Pemex was formed in 1938.
The government hopes the reform will boost production, and the first exploration blocks will be awarded on July 15.
Pemex, which has been struggling to reverse a decade-long production decline, said net sales slumped to 280bn pesos in the three months to March 31, from 407bn during the same period last year.
Pemex’s head of production, Gustavo Hernández, said average first-quarter crude production was some 2.3m barrels per day, a decline of 7.7 per cent compared to one year ago. Production of heavy crude fell almost 12 per cent.
But Mr Hernández said the company was not reducing its annual production forecast.
He told the Financial Times earlier this month that production declines at Pemex had touched bottom, and the company was in the process of getting back to growth.
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