Falling oil prices hardly seem to be bothering the two biggest US oil companies, but things could get tougher in the coming months.
Exxon and Chevron leaned on strong performances from their refining operations to increase profits in the third quarter, despite plummeting global oil prices.
The global price of oil fell 18 percent from the beginning of the quarter to the end, and it cost both companies. Revenue slipped at Exxon by 4 percent and at Chevron by 8 percent.
Photo: Reuters
However, low oil and natural gas prices make for low raw material costs — and higher profit — for refining and chemical operations, which turn oil and gas into fuels and chemicals.
Profit at Exxon’s refining and chemicals operations rose 38 percent compared with a year earlier, and Chevron’s profit from its so-called downstream operations more than tripled.
Those results helped Exxon’s overall earnings rise 3 percent in the quarter to US$8.07 billion. Chevron’s earnings rose 13 percent to US$5.59 billion.
The trend lately has been for integrated oil and gas companies, which own production, refining and distribution assets, to spin off their refining operations into different companies in an effort to better appeal to investors. ConocoPhillips, Marathon and Hess have all exited refining in recent years.
Exxon chief executive officer Rex Tillerson on Friday defended his strategy of remaining integrated.
He said in a statement that the company’s strong results “demonstrated the strength of our integrated business model.”
Integration, he said, “gives us competitive advantages in scale, efficiency, technical and commercial capabilities, regardless of market fluctuations.”
Exxon and Chevron joined rival Royal Dutch Shell in posting rising earnings for the quarter.
However, other major oil international oil companies, such as BP, ConocoPhillips and Total, saw earnings fall in the third quarter on lower oil prices.
However, all may suffer in the fourth quarter.
The slide in oil prices accelerated early last month, at the beginning of the quarter, and reached lows not seen in four years.
If prices remain low or continue to fall, it could create declines too large for better refining results to cover.
Also, a reason oil prices have fallen so far is that demand for fuels is weakening around the world, which could limit output and profit gains at refining operations.
However, Exxon, unlike nearly every other major oil company, said lower global oil prices would not change its plans to invest in new projects.
And it suggested in a call with investors that the drop in oil prices might be a good time to use its cash to buy undervalued assets.
“We continue to invest through the cyclical nature of our business,” said Jeff Woodbury, Exxon’s vice president of investor relations. “We’re a long-term business.”
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