The latest Fortune 500 list has four oil majors in the top 100 – Exxon, Chevron, Marathon Petroleum, and ConocoPhillips – and another one, Devon Energy at 219. All of these companies have in common their solid revenues, but revenues alone don’t give the whole picture. Here’s what these five have to show for the last couple of years.
#2 Exxon Mobil
Large and sustainable diversified model, progressive dividend strategy, facing possible climate-related charges
ExxonMobil is the biggest of them all, coming in at number 2, with 2015 revenues of $246.2 billion. ExxonMobil may be the biggest, but not the fairest by far, if you ask some of its shareholders, who are pressing the company to acknowledge climate change and adjust its strategy accordingly. Exxon is happy to be where it is: consistently in the black, unlike many of its peers, and fearlessly pursuing a progressive dividend policy despite market conditions. The latter, by the way, recently cost Exxon its AAA rating from S&P, but the outlook remained stable. Regardless, as far as Exxon is concerned, it is not changing course.
Many stock analysts consider Exxon a top pick in the energy sector. Its sheer size and diversified business model with solid operations both upstream and downstream are seen as guarantees of stability. This is basically true: during the downturn Exxon leaned on downstream to offset losses in the upstream—mainly in North America—and managed to remain profitable. The company sees no reason to change its course, but it may have to under pressure from authorities that are investigating it on climate change-related charges and from environmental groups. The investigation is facing serious opposition and it is possible that the whole thing will blow up spectacularly at some point. That will be more fallout for Exxon to deal with, but if BP managed to survive the 2010 Gulf of Mexico disaster, then Exxon will surely be able to emerge from any such event as solid as ever.
Continued large-scale investments despite profit losses, holding onto assets, focusing on LNG and shale
Going down the Fortune 500 list we see Chevron at number 14. The U.S. number 2 in oil has seen more mixed fortunes than its bigger rival over the last two years. It invested billions in large-scale projects, such as the Gorgon and Wheatstone gas fields and LNG export terminals in Australia. The Gorgon LNG started production earlier this year, but Wheatstone has been delayed by Australian regulators. The high costs plus the collapse of LNG prices raise questions about the long-term returns on these projects.
Chevron is also a major player in the U.S. shale patch and has been hit by low oil prices at home, too. But Chevron is not giving up on shale, despite reporting a huge drop in profits for 2015 and a loss for the first quarter of this year. At its latest annual shareholder meeting, the management reiterated its commitment to large-scale projects, basing it on their considerable capacity to enhance earnings in the future, help reduce spending and improve cash flow. For now, the company is cash-flow negative and is pinning its hopes on LNG and shale, neither of which are particularly competitive at the moment, but both could hold significant promise for the future.
#42 Marathon Petroleum
The former downstream unit of Marathon Oil, Marathon Petroleum, was more resilient than its former parent over the crisis because of its focus on refining but even so, it did not avoid damage to its bottom line completely. Last year, unlike E&Ps, Marathon Petroleum actually managed to turn in a higher profit, at $2.85 billion, versus $2.52 billion for 2014. The company enjoyed higher refining margins but these didn’t’ help it in the first quarter of this year, when it reported net profits of just $1 million. However, the meager result was caused by inventory writedowns and a goodwill impairment.
Looking at its former parent, we see a company that has been comfortably resilient to the oil price rout, managing to weather the effects of low oil prices by slashing its budgets two years in a row, and selling almost $950 million in non-core assets in 2016. Marathon also cut its dividend by as much as 76 percent late last year.
To date, Marathon has a focus on shale at home, betting mainly on its operations in the Eagle Ford and Oklahoma. Its capex for this year was set at $1.4 billion in February, down 50 percent from 2015, which in turn was 20 percent lower than 2014 levels. Marathon could have capitalized on the low-cost and easily accessible shale in the Permian, but it quit the play in 2009, before the shale boom really spread there. All in all, at the moment Marathon is stable on its feet, and CEO Lee Tillman is confident that the company can turn in a profit at $50 per barrel of oil. Related: How Hard Did The Oil Crash Hit Canadian Banks?
ConocoPhillips is on the defensive. The company has indicated that it will not be pursuing any new large-scale projects in the short term, at least until it makes sure the oil price rebound is sustainable. It actually can’t pursue any new large-scale projects: it has seven under way, after years of huge investments. Pressed for cash and having booked a loss of $1.5 billion for the first quarter, defensive seems appropriate for ConocoPhillips at this point. Unlike Marathon Oil, however, Conoco opted for a debt issue to improve its cash position, along with cutting its capex plan for the current year by $700 million to $5.7 billion. Divestments to the tune of $2 billion also contributed to stabilizing the balance sheet.
This year, a third of Conoco’s capex plan will go to the seven major oil and gas projects in Australia (LNG), Alaska (oil), Europe (oil and gas), Malaysia (gas), and China (oil and gas). Another third will be used for drilling across the U.S. shale patch, as well as for ongoing operations in Canada, Asia and the Middle East. ConocoPhillips is lying low, taking care of its ongoing operations across the world and waiting for the storm to pass.
#216 Devon Energy
Grew production well into price rout, now selling over $2 billion in assets and working to increase production efficiencies
The top 5 oil and gas entries on the Fortune 500 list are completed by Devon Energy, at #216. The company bet on growing production despite the price rout, but after slipping into a $4.5-billion loss last year it is in the midst of a U-turn. This year Devon plans to sell assets worth $2 to $3 billion and will also continue to work on lowering costs. Again, nothing new or very original. In fact, what sets it apart from the other four is that, it seems, Devon was overconfident and waited longer before addressing the depressed price environment. Related: Niger Delta Avengers Reject Talks; Blow Up Another Chevron Well
The recent rebound in oil prices has certainly let it breathe a bit more freely, especially coupled with the news that it was in the process of selling some $1 billion of assets in the shale patch. Devon also slashed its exploration capex guidance for 2016 to between $900 million and $1.1 billion, waking up to the new realities: there’s no point in growing production for the sake of growing production, if returns are below breakeven. Devon has emerged as more complacent than peers and has paid for it. Now it is acting quickly to turn things around.
All of these companies have used more or less all tools available to them to survive the crisis and maintain some level of profitability. While Exxon demonstrates that size and diversification can sustain such a business, Devon, at the other end of the scale, has shown that getting too comfortable without having the means to weather a major crisis always has repercussions. All five have suffered the consequences of the oil price drop, to a different degree, but all five have proven resilient enough. Whether this resilience will hold in case of another sudden price drop—always a possibility in the minds of those thinking far ahead—is questionable.
By Irina Slav for Oilprice.com
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