Top Oil Companies See Reduction in Natural Gas Profits
The nation’s top oil companies – Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP), and Royal Dutch Shell (NYSE:RDS.A) — released their annual reports earlier this month and their outlooks were similar. While profit margins and budgets for capital expenses differed, each announced an increase in general exploration costs along with a decline in natural gas profits. For the first time in their annual remarks, Exxon and Shell also addressed future ecological and legislative challenges facing the industry’s future.
Exxon, the country’s largest oil company, forecasted flat overall production in their financial and operating review. Compensating this shortfall, it will reduce capital costs 6 percent this year to $39.8bn and will be reducing that amount to $37bn by 2017, excluding acquisitions. Accounting for expired and sold deals, Exxon expects to maintain oil production levels in 2014 and increase by 300,000 barrels per day in 2015 to 2017. It also announced 10 major new projects that are expected to increase daily production by 1 million barrels, or a quarter of their current output. However, the company’s natural gas profits were lower and it is cutting back shale drilling efforts.
Of note on the 25th anniversary of the 1989’s Valdez spill was Exxon’s announcement that it will be the first to publically publish information on the company’s profit risks if increased climate change policy is enacted. Under pressure from shareholder activists, Exxon agreed to release the “carbon asset risk” report by the end of this month.
Chevron, the country’s second largest oil company, announced a similar production outlook. As reported by Reuters, Chevron cut its overall production forecast by 6 percent through 2017, citing project delays. Like Exxon, natural gas efforts decreased overall production and both companies remarked that their reduced output and low consumer prices made natural gas less economical to produce.
However, in a departure from the other large oil companies who cut capital spending budgets due to shareholder demands, Chevron is keeping their capital expenditure intact at $40bn and cited their strategy of targeted investment as best for investor interests. Bolstered by the reversal in their Ecuadorian pollution case, Chevron’s maintenance of their capital budget is partially attributed to their deepwater and shelf drilling ventures in areas such the Gulf of Mexico as well as expected increased production in the Asia-Pacifics.
Shell announced significant cuts to their capital spending, from $46bn to $37bn, as they also faced challenges associated with shale oil production, and attributed those at the main reason for the company’s profit loss. Acknowledging that some of their exploration projects weren’t fruitful, the British-based company will be exiting three U.S. investments and divesting two more, as well as cancelling their controversial plans for Arctic oil exploration. Along with Exxon, Shell expressed possible future profit risks if proposed federal regulatory efforts are approved.
BP’s weaker-than-expected production margins, cleanup costs, and downsizing resulted in a 34 percent profit decline from the previous year. It announced a different strategy with its natural gas exploration efforts. Instead of following the other majors, BP’s annual report details their plan to split off their shale exploration and production division into a separate company. The new company will still operate under BP’s auspices and is a move aimed to be more competitive with the smaller companies currently gaining market share.
Affecting BP’s profits were the remaining costs of the 2010 Deepwater Horizon oil spill, rising $42.7bn from $42.5bn last year. The spill decreased BP’s overall output by 62 percent and, coupled with BP’s inability make up for 60 percent of the loss since, is a contributing factor in the company’s profit loss in recent years. BP’s recent award of new offshore drilling leases in the Gulf will not affect production output until 2025.