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[NEW YORK] Weak oil prices shriveled quarterly profit at Exxon Mobil Corp and Chevron Corp on Friday, compelling both companies to rethink operations and plan for what many expect to be a sustained period of cheap crude.
Earnings at US oil majors Exxon, which were the worst in a decade, and Chevron missed analysts' expectations, adding to concerns that perhaps executives had not acted quickly enough to mitigate the impact of an over-50-per cent drop in oil prices since last summer.
The results highlight how smaller and more nimble US shale oil companies have slashed costs faster and more aggressively than global majors. Some shale producers have cut back drilling by 60 per cent or more.
Evan Calio, an analyst with Morgan Stanley, said on Exxon's earnings conference call that the oil giant appeared to be less vocal than its peers about cutting costs.
Jeff Woodbury, Exxon's head of investor relations, responded that the company was constantly focused on capital efficiency and cost management.
Still, Exxon is sticking for now with its plans to spend US$34 billion this year, although that figure has a downward bias because of cost savings and efficiencies, Woodbury said.
Chevron also still plans to spend US$35 billion this year, but said it would spend less in 2016 and 2017 as several mega projects come online.
Exxon and Chevron's European peers such as Royal Dutch Shell Plc have taken more aggressive action. BP Plc cut its budget for the second time this year, while Shell said it would lay off 6,500 workers.
Exxon's profit fell by more than half, with the biggest drop in its exploration and production business, where earnings slumped by nearly US$6 billion Chevron's profit plunged 90 per cent, a starker drop and one exacerbated by a US$2.22 billion loss in its exploration and production division.
Pat Yarrington, Chevron's chief financial officer, seeking to head off complaints about cost management, said the company had slashed about US$3 billion in spending so far this year, and wasn't done. Still, analysts peppered her throughout the earnings call for details.
Though production grew at both companies, they missed the estimates of many analysts who had expected the energy giants to pump more.
Shares of both slumped more than 3 per cent in afternoon trading.
To be sure, the two companies benefited from their refining divisions, which make gasoline and other fuels.
Refining units tend to be far more profitable when oil prices are low, providing Chevron and other integrated energy companies with an internal hedge during times when core operations, such as oil production, are weighed down by weak prices.
Both companies stressed their ability to weather the price doldrums and emerge stronger.
Chevron's Chief Executive John Watson, for instance, bluntly described the results as "weak." He laid off 2 per cent of its staff earlier this week. "I think in general the industry is putting a sharper pencil to cost cutting," said Brian Youngberg, senior oil company analyst at Edward Jones in St Louis. "I think they are realizing the days of US$100 a barrel (oil) are over." Exxon also said Friday it would slow its share repurchase programme. The company purchased US$1 billion of its own stock in the second quarter, but expects to spend roughly half of that on repurchases in the third quarter.
Chevron earlier this year scrapped its entire repurchase program.