HOUSTON Oct 28 Exxon Mobil Corp, whose
oil field assets are being investigated by the U.S. government,
warned on Friday it may need to slash proved reserves on its
books by nearly 20 percent if oil prices stay low for the rest
The news pushed the company's share price down 2.3 percent
to $84.93 in afternoon trading, on an otherwise upbeat day that
saw Exxon and Chevron post quarterly profits that beat Wall
Results were helped by cost cutting, though refining margins
narrowed from previous quarters.
Exxon, as part of its reserves announcement, said it would
perform an assessment of its major long-lived assets during its
annual budgeting process, similar to one carried out in 2015.
"Quantities that could be required to be de-booked as proved
reserves on an SEC basis amount to approximately 3.6 billion
barrels of bitumen at Kearl, and about 1 billion oil-equivalent
barrels in other North America operations," the company said in
The comments are significant because a more than 50 percent
drop in oil prices since mid-2014 to near $50 a barrel now has
forced many integrated oil producers around the world to write
down the value of their assets. Exxon is essentially the only
major producer that has held off doing so thus far.
Despite the warning, Exxon said any write-downs to reserves
it can profitably extract would not affect the outlook for
future production volumes.
Exxon has repeatedly said it uses very low price assumptions
when booking reserves, though it acknowledged in September that
the U.S. Securities and Exchange Commission is investigating how
it has valued its reserves in the wake of low prices.
The long-term inflation-adjusted price of oil since 1946 is
around $40 a barrel.
The 4.6 billion barrels Exxon mentioned as at risk on Friday
represent 19 percent of the 24.8 billion oil-equivalent barrels
on its books at the end of 2015.
The refining earnings shift at Chevron and Exxon could mark
a transition in the oil industry as companies have adjusted
their operations to lower prices and are indeed expecting prices
to stay in their current range around $50 per barrel
through the end of the decade.<0#CLCAL:>
Refining, which kept the oil industry afloat the past three
years as crude prices fell sharply, has been hammered so
far in 2016 by an oversupplied fuel market that hurt what had
been lucrative margins. A slight uptick in crude prices during
the third quarter also ate into industry margins.
The pain was especially pronounced at Chevron, where
earnings from its downstream division, which refines fuel, fell
more than 50 percent to $1.06 billion.
The profit drop comes at a time when Chevron is investing $1
billion to renovate its Richmond, Calif., refinery.
But in the company's upstream division, which pumps oil and
natural gas, earnings jumped more than sevenfold to $454
Chevron executives said the improvement was due to a cheaper
tax bill as well as cost cuts, both of which helped offset lower
prices. Also, Chevron did not try to boost production early in
the quarter as prices marched slowly higher, echoing an industry
trend to focus on cost.
"While growing production is important, we are focused on
expanding margins by increasing efficiencies in our operations,"
Bruce Niemeyer, head of Chevron's mid-continent division, told
investors on Friday.
For all of Chevron, the company posted a drop in quarterly
profit that still beat expectations. It said earlier this week
it would raise its quarterly dividend by a penny.
The dividend boost and Chevron's earnings beat helped push
the stock up 3.6 percent to $103.51 in afternoon trading.
At Exxon, earnings from pumping oil and natural gas fell 54
percent to $620 million, as low commodity prices took a bigger
toll at the company than they did at Chevron.
Earnings at Exxon's refining division, to which the company
owed much of its financial stability in recent years, fell 40
percent to $1.2 billion, harmed by many of the same industry
factors that dented Chevron's refining arm.
Exxon's chemical division was a bright spot for the company
this quarter, with earnings falling only 4 percent to $1.2
billion due to larger sales volumes.
(Reporting by Ernest Scheyder and Terry Wade; Editing by Chizu