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 As crude prices slid 60 percent from mid-2014, large integrated
energy companies have touted the virtues of a business model that
both produces oil and refines it. Refiners typically see
profitability increase when the price of their main feedstock - oil
- falls.
But growing fuel inventories and weak demand are now hammering the
refining industry, turning a typical advantage for integrated oil
companies on its head.
First-quarter pain in the downstream units, which came after major
U.S. refiners slashed the amount of cheap crude they were processing
in February, is a sign the road ahead for oil majors may turn even
rockier. Their upstream exploration and production units have been
reeling for months from the crude price crash.
Both Exxon and Chevron sought in Friday conference calls with
investors and analysts to downplay the weakness in their refining
units.
Chevron Chief Financial Officer Pat Yarrington acknowledged lower
worldwide refining margins on the call.
Jeff Woodbury, Exxon's vice president of investor relations, blamed
the weak results on lower demand and high inventories of refined
gasoline and other products after a relatively warm North American
winter.
Lower profits from Exxon and Chevron's refining divisions
contributed to weaker overall results for both companies.
Exxon's net income fell 63 percent to $1.81 billion, its lowest
since 1999, although analysts had expected a bigger drop.
Chevron, the second-largest U.S. oil company behind Exxon, reported
a net loss of $725 million, compared with a year-earlier net profit
of $2.57 billion. The loss was the biggest since 2001, and earnings
before special items missed Wall Street estimates.
Exxon shares were up 0.2 percent at $88.20 in afternoon trading,
while Chevron fell 0.8 percent to $101.59.
For the past six years, U.S. refiners from Texas to Philadelphia
have bought every barrel of crude they could lay their hands on to
cash in on a golden era of healthy margins.
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But those are fast disappearing. Among refiners, Marathon Petroleum
Corp barely eked out a profit in the first quarter, and Phillip 66's
consolidated earnings fell by more than half a billion dollars to
$385 million.
Profits were down by nearly half at $906 million at Exxon's refining
unit and at $735 million at Chevron's.
In February, at least five U.S. refiners have voluntarily reduced
output of fuels in the most widespread cuts since the global
financial crisis.
Independent refiners including Valero Energy Corp, PBF Energy Inc,
Philadelphia Energy Solutions and Monroe Energy, a unit of Delta Air
Lines Inc, have curbed output, capitulating to record stockpiles and
sluggish demand.
Exxon has also cut the amount of crude it processes at one Texas
refinery.
While so-called run cuts are common for maintenance, they are rare
for purely economic reasons.
If the closures gather pace and refineries curb their purchases of
crude further, this will heap further pressure on oil prices
exploration and production companies can command.
(Reporting by Ernest Scheyder; Editing by Terry Wade and Lisa Von
Ahn)
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