By Daniel Gilbert
Exxon Mobil Corp., the biggest and richest U.S. oil company, is
moving to conserve cash in a sign that it doesn't expect a quick
rebound in crude prices.
Despite generating $87.3 billion in revenue last year, Exxon's
cash flow in the last three months of 2014 fell to its lowest level
since recession-wracked 2009. On Monday, the company said it would
cut share buybacks by $1 billion this quarter, saving about $2
billion as it searches for ways to cut costs.
"This organization has a very strong culture of driving down our
cost structure," Jeff Woodbury, Exxon's head of investor relations,
said in a call with analysts. The Irving, Texas, company isn't
assuming that oil and gas prices will increase, he added.
One by one, the world's biggest oil and gas producers are
posting weaker profits as oil prices have collapsed to less than
$55 a barrel from triple digits over the summer. Last week,
ConocoPhillips said it would cut spending on new oil and gas
projects by 15%, on top of a 20% cut disclosed in December.
Occidental Petroleum Corp. said it would chop capital spending by a
third this year.
Royal Dutch Shell PLC has said it would spend $15 billion less
than planned over the next three years. And Chevron Corp. plans to
cut spending by $5 billion from 2014 and suspend its share-buyback
program.
Exxon said it operated more drilling rigs in the U.S. in the
fourth quarter than it had earlier in the year, and its
retrenchment is less drastic than some of its rivals. But given the
company's focus on the long-term, its efforts to retain cash are a
sign of just how cautious energy executives have become. The
company won't report its capital spending plans until March.
The big, diversified energy companies "were built for conditions
like these," said Doug Terreson, head of energy research at
Evercore ISI. But even giants "want to try and preserve cash and
prepare for the downturn in case it's extended."
These companies, which generate billions of dollars in cash flow
a year, are among the best insulated in their industry against the
bite of falling oil prices. They have strong balance sheets and own
refining and chemicals businesses that can benefit from cheap
crude, which they convert to plastics, gasoline and other
fuels.
Smaller companies, whose shale-drilling has sparked a resurgence
in U.S. oil and gas output, are more vulnerable to the price
collapse; most of them will report earnings later this month.
There are signs that crude prices might be stabilizing. The U.S.
benchmark for oil prices rose to $49.57 on Monday, continuing a
recent recovery since prices dipped below $45 a barrel last week.
The price of Brent crude, the global benchmark, also rose to
$54.75, up 3.3%.
Exxon's shares rose 2.5% to $89.58 in 4 p.m. New York on Monday
trading amid gains in the broader market.
Among the data that made traders more bullish was a report that
the number of rigs drilling for oil in the U.S. fell 7% last week
to 1,223, the lowest in three years, according to
oil-field-services company Baker Hughes Inc. A surge in U.S. oil
output, along with muted demand for oil around the globe, has led
to an oversupply of crude that some energy analysts have put as
high as 2 million barrels a day.
Still, few analysts expect U.S. oil production to slow until the
second half of the year at the earliest, and crude prices remain
near the lowest level in six years.
The oil-price slump has arrived at a vulnerable moment for big
energy companies. Natural gas prices have remained low since
drillers unleashed a flood of gas from shale-rock formations
beginning around 2008, keeping a lid on profits of big producers
like Exxon, which bought XTO Energy, a shale-gas pioneer, for $25
billion in 2010.
Bolstered by oil hovering around $100 a barrel for the last
three years, Exxon and its peers have invested at historic levels
to tap massive energy deposits in some of the most remote reaches
on earth, from Australia's offshore gas fields to Canada's oil
sands. At the same time, they have steadily boosted dividend
payments that long been their hallmark, and added share buybacks as
a further enticement to investors.
Such aggressive spending, combined with low interest rates, has
led energy giants to pile on billions of dollars in debt. Now,
crude's fall is taking a toll on the most fortified balance sheets
in the oil patch, with some analysts questioning how much new debt
Exxon and Chevron can take on and still maintain their superior
credit ratings. The companies have indicated they can borrow much
more without jeopardizing their credit ratings.
Exxon borrowed $7.3 billion in the quarter, bringing total debt
to $29.1 billion, more than double the level in early 2013. Cash on
hand fell to $4.7 billion by the end of last year from $5 billion
at the beginning of the year.
Exxon's $6.6 billion profit for the fourth quarter of 2014 was
21% less than a year ago, contributing to its weak cash flow. While
still more than any U.S. rival, Exxon's cash flow for the quarter
was about $7 billion short of covering its costs for tapping oil
and gas, paying dividends and repurchasing shares.
In all, Exxon reported a per-share profit of $1.56, down from
$1.91 a year earlier. Revenue slipped to $87.3 billion from $110.9
billion.
Wall Street analysts polled by Thomson Reuters expected the
company to report per-share profit of $1.34 on revenue of $87.6
billion.
Exxon is expected to release its capital spending plans for 2015
next month; a year ago, it forecast spending less than $37 billion
this year.
Corrections & Amplifications
Exxon Mobil's refining and marketing earnings fell by 46% in the
fourth quarter. An earlier version of this article misstated the
percentage in the sixth paragraph.
Write to Daniel Gilbert at daniel.gilbert@wsj.com
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00B03MLX29
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00B03MM408
Access Investor Kit for Baker Hughes, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0572241075
Access Investor Kit for Chevron Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US1667641005
Access Investor Kit for ConocoPhillips
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US20825C1045
Access Investor Kit for Exxon Mobil Corporation
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US30231G1022
Access Investor Kit for Occidental Petroleum Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US6745991058
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7802591070
Access Investor Kit for Royal Dutch Shell PLC
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7802592060
Subscribe to WSJ: http://online.wsj.com?mod=djnwires