AP, 03 February 2016

The big plunge in crude prices is taking a toll on Big Oil, with both Exxon Mobil and BP posting sharp falls in profit.

Exxon Mobil said fourth-quarter profit fell 58 per cent to $US2.78 billion. It was the oil giant’s smallest profit since the third quarter of 2002.

Exxon’s core exploration and production business lost money in the US and international earnings plummeted by nearly two-thirds. One of the few bright spots, Exxon’s refining operation, was more profitable than a year ago. That helped Exxon avoid the fate of rival Chevron, which last week said it lost money in the fourth quarter.

Meanwhile BP’s fourth-quarter earnings plunged 91 per cent amid sharp declines in oil prices as the British energy company continued to make provision for the Deepwater Horizon disaster in the Gulf of Mexico and streamline operations.

Oil companies are slashing jobs and delaying investments as crude prices plummet. Brent crude, the benchmark for internationally-produced oil, fell 34 per cent last year and hit a 12-year low of $US27.10 a barrel in January.

Overnight, crude prices cracked below $US30 a barrel again. Light, sweet crude for March delivery sank 5.5 per cent to $US29.88 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 4.4 per cent to $US32.75 a barrel.

The amount of oil on the market remains at extraordinarily high levels and producers, with prices so low, continue to drill just to earn what they can.

Exxon’s production rose nearly 5 per cent. In 2015, the company pumped oil and natural gas equal to 4.1 million barrels a day.

Lower oil prices are causing producers to cut back on new investments. Exxon slashed fourth-quarter capital and exploration spending by 29 per cent compared with a year earlier, and it plans to cut that spending by one-fourth, or about $US8 billion, in 2016.

Still, Exxon expects to start six new projects this year, from Alaska to Australia. The company believes those projects make sense over the long term.

Exxon was paid about $US34 a barrel for US crude in the fourth quarter, down from $US63 a year earlier, and a couple dollars more for oil overseas. The price it got for natural gas fell by about half.

Jeff Woodbury, the company’s vice president of investor relations, said that the oversupply of crude — it’s about 1.5 million barrels a day more than demand — will shrink in the second half as seasonal demand grows. But there are still huge stockpiles of oil, and Mr Woodbury declined to predict when crude prices might increase.

CEO Rex Tillerson called it a “challenging environment,” but said the company is generating enough cash to continue investing in the business.

Exxon’s profit fell from $US6.57 billion a year earlier, when oil prices were already beginning to tumble.

Earlier, BP reported that underlying replacement cost profit fell to $US196 million ($A276 million) from $US2.2 billion in the same quarter a year earlier. The figure is an oil industry accounting standard that includes fluctuations in the price of oil and excludes one-time items.

“It’s going to be a very turbulent year for our industry,” CEO Bob Dudley said as he opened a news conference in London.

BP also set aside an additional $US443 million in the quarter to cover costs related to the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. Charges for the spill now total $US55.5 billion.

BP stock fell sharply on the news by early afternoon, dropping nearly nine per cent to 335.10.

Yet Mr Dudley took the numbers in stride, arguing that the markets had failed to take into account a robust $US5.8 billion operating cash flow for the quarter. The company also said it was taking steps to streamline redundant systems put in place for legal reasons after the spill and that operations would simplified. “We have our confidence back now,” he said.

The company said it reduced controllable cash costs by $US3.4 billion last year, and estimated future cuts at almost US$3.6 billion. It forecast asset sales of as much as $US5 billion this year.

BP also announced 3,000 job cuts globally by the end of 2017. That is in addition to 4,000 cuts planned in exploration and production — including some 600 in North Sea operations.

AP

Extracted in full from The Australian.

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