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Exxon and Chevron Report Worst Quarterly Results of Current Decade

An oil field in Bakersfield, Calif., where Chevron is the principle operator. Chevron is sharply cutting its capital and exploratory expenses, with oil prices half of what they were a year ago.Credit...Mark Ralston/Agence France-Presse — Getty Images

HOUSTON — The long decline in oil prices is hitting American oil companies where it hurts and forcing them to scale back some investments in their production that would otherwise drive future growth.

Exxon Mobil and Chevron on Friday posted their worst quarterly results of the current decade as oil and natural gas prices continued to plunge.

The results of the companies, and those of almost the entire oil patch this week, were disappointing but not all that surprising since the price of oil is now half what it was a year ago. With most benchmarks hovering around $50 a barrel at the height of the driving season, many analysts say the price will fall further before it rises again.

Oil prices are under pressure, driven by a glut of oil in the United States and on world markets because of resilient domestic production and increased production by Saudi Arabia and other Persian Gulf states. The recent nuclear deal with Iran may eventually add as much as a million barrels a day to the global market of 94 million barrels, further dousing speculation that prices will rebound soon.

The two American oil giants are better off than most of their smaller peers, who in recent days have been cutting their payrolls, writing down assets and in some cases reporting losses. The oil giants’ refinery businesses benefit from the grinding drop of commodity prices, but the strength of their global diversified businesses was not substantial enough to balance the reduced revenue of their exploration and production businesses.

The gloomy mood among oil executives was summed up this week by Al Walker, Anadarko’s chief executive, who told analysts, “It just seems unlikely that we will have the kind of margins that we have seen historically that would encourage us to go back into a growth mode.”

Exxon Mobil, the largest American oil company, reported a 52 percent drop in profit for the second quarter. Revenue dropped by a third, and the profits of its exploration and production businesses declined 74 percent, to $2 billion. On the positive side, Exxon’s oil and gas production rose nearly 4 percent, reflecting improved efficiencies across the industry.

But the company announced it was scaling back share buybacks as cash flows tighten because of low oil and gas prices. Analysts estimated that Exxon buybacks would be a tenth what they were just four years ago, when energy prices were far higher. Not expecting a rebound in oil and gas prices anytime soon and trying to conserve cash, the company cut its spending in the quarter, reducing capital and exploration expenditures 12 percent to $16 billion.

“A second straight quarterly loss in the U.S. production segment was a surprise, given that oil prices were higher than the last quarter,” said Brian M. Youngberg, a senior energy analyst at Edward Jones.

Energy companies that have long been known for hefty profits are now forced to cut investments around the world. Rystad Energy, a consulting firm based in Norway, has estimated that the cuts will amount to $180 billion in 2015 alone. That has brought tens of thousands of job losses, which are beginning to hurt the economies of energy-rich states like Louisiana, North Dakota, Oklahoma and Texas.

Some of the cuts in spending by Exxon, Chevron and other companies result from lower payments to service companies, which must lower their rates for well drilling and completions as exploration activity declines. Other cuts come in high-cost fields, like Canada’s oil sands and deepwater offshore projects. But Exxon and Chevron are still pressing ahead in promising oil and gas fields in several countries, including the United States and Australia.

Chevron’s net income fell severely in the second quarter to $571 million, from $5.67 billion in the same quarter a year ago. Revenue fell to $40.4 billion, from nearly $58 billion a year ago. Over the first six months of the year, Chevron cut its capital and exploratory expenses to $17.3 billion, from $19.6 billion, over the first half of 2014.

Its oil and gas production businesses actually lost money, $2.22 billion, in contrast to earning more than $5 billion in the year-ago quarter. The company announced a write-down on assets of $1.96 billion. This week the company said it would cut 1,500 jobs as part of an effort to reduce costs by $1 billion.

“Our upstream businesses were particularly hard hit,” said Chevron’s chief executive, John Watson, “as lower prices reduced revenues and triggered impairments and other charges.” He added, “Multiple efforts to improve future earnings and cash flows are underway.”

There was some good news in the Chevron results. Earnings from its refinery businesses, which make gasoline, lubricants, diesel and other refined products, were lifted by stronger margins to nearly $3 billion from $721 million in the year-ago quarter. Also, production of oil and gas was up 2 percent because of new or stepped-up operations in Argentina, Bangladesh and the Permian basin in West Texas.

Nevertheless, analysts expressed disappointment.

“Second-quarter earnings were lower than expected for both companies, a disappointment for Exxon and a disaster for Chevron,” said Fadel Gheit, a senior oil company analyst at Oppenheimer & Company. “Both lost money in the U.S., especially Chevron.”

The lower oil prices are helping consumers. The AAA motor club reported that gasoline prices are falling at the fastest rate since January, declining 16 days in a row for a total of 11 cents a gallon. The average price nationally for a gallon of regular gasoline on Friday was $2.66, the lowest for this time of year since 2009.

Most energy analysts expect that oil prices will decline through at least the end of the year.

“Oil prices will be under downward pressure until there is evidence the glut is shrinking,” IHS Energy, a consultancy, projected in a report on Friday. “This will not happen quickly unless prices fall even further from recent levels.”

The IHS Energy report noted that global oil production had gone up, not down, this year because of production in the United States, Saudi Arabia and Iraq. Together, they have increased their output by two million barrels a day, far outstripping demand. It further projected that oil prices would have to slide closer to $40 a barrel for several months before a decline in United States output would erode the global glut.

A $40 price would be ruinous for many small, independent oil companies operating in the shale fields of North Dakota and Texas, where break-even well costs average about $60 a barrel. The domestic rig count has already dropped roughly 60 percent, but it takes time before the output of new wells falls. Many of the small companies have remained solvent because they have price hedges on their output, but those hedges will begin to run out this year and next.

Some analysts, however, think prices could rebound. A Barclays report on Friday said the high output by several members of the OPEC cartel was not sustainable, and a drop in production and exports would help tighten the market. The report noted that pipeline disruptions tied to political violence in Iraq were already taking a toll. It also said that Iranian oil was not likely to be a significantly larger portion of the global market until at least the middle of 2016.

And perhaps most important, the Barclays report noted, “U.S. production will fall in 2016 if prices stay at these levels.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Prices Curb Oil Industry Ambitions . Order Reprints | Today’s Paper | Subscribe

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