The Fuse

Disappointing Fourth-Quarter Results Put Pressure On Oil Majors

by Alex Adams | @alexjhadams | February 03, 2020

A poor round of fourth-quarter results for oil majors Shell, ExxonMobil and Chevron has fueled greater concern among shareholders and investors over the long-term strategies and viability of oil and gas sector stocks.

Although production was up at ExxonMobil, Q4 2019 earnings—$67 billion in revenue and a net income of $5.7 billion—missed expectations, with only a large asset sale in Norway during the quarter saving them from a 66 percent drop in net income from the previous year. Shares were down almost 4 percent following the company’s earnings announcement.

Chevron also fared badly, posting a $6.6 billion loss in the fourth quarter, which the company attributed to the $10.4 billion in write-offs related to its shale gas production in Appalachia and deepwater projects in the Gulf of Mexico. Shell also disclosed that its fourth-quarter profits almost halved from last year to $2.9 billion, with full-year profits dropping 23 percent to just under $14.5 billion. In addition, the company’s oil and gas reserve life fell for the sixth year in a row in 2019 to fewer than eight years.

Industry watchers and analysts are lining up to voice their concern, as the energy sector’s share of the S&P 500 Index fell below 4 percent for the first time in at least 40 years. When asked about Exxon and Chevron’s results, financial pundit Jim Cramer told CNBC’s “Squawk Box” that “I’m done with fossil fuels, they’re done,” citing global divestment and pension funds pulling out of fossil fuel stocks before adding that fossil fuel stocks are “in the death knell phase.”

Similarly, fund manager Mark Stoeckle noted that diminishing returns have harmed investor confidence in oil and gas stocks, telling Bloomberg that Exxon and Chevron are “competing in a sector that has systematically destroyed value for investors over the past decade,” adding that “it’s going to take time and consistent results” for the investing public to regain this confidence.

In response, both Chevron and Exxon have announced they are sticking to their spending plans, even as energy prices stay low and surplus capacity remains among refineries and LNG plants. Exxon CEO Darren Woods said the company stands by its plans for $33-35 billion in capital spending in 2020, noting that “demand will continue to grow, driven by a rising population, economic growth and higher standards of living.” As a result, Woods added, excess capacity will shrink, margins will rise, and new capacity will subsequently be needed.

Additionally, Chevron CEO Mike Wirth said the company planned $20 billion in capital spending this year, on par with the last two years. Instead of taking Exxon’s route of investing in megaprojects, the company is focusing on capital efficiency and shale—keeping its major projects in foreign locations largely on the back burner.

Yet with some industry watchers concerned that Exxon is spending too much and Chevron spending too little, analyst voices beyond the activist community may begin to follow Jim Cramer’s lead and state that Big Oil’s star is starting to wane.