By Sarah Kent and Bradley Olson 

Exxon Mobil Corp. posted its weakest annual results in more than a decade and BP PLC suffered a loss as big as that booked in the aftermath of the worst offshore oil spill in its history, showing the extent of the damage that the 20-month crude-price slump can inflict on even the biggest and most secure oil companies.

BP posted a loss of $5.2 billion for 2015--on par with 2010, when one of its Gulf of Mexico oil rigs exploded, killing 11 workers and spilling 3.2 million barrels of oil. And Exxon's annual earnings were cut in half to $16.2 billion, forcing the Irving, Texas, company to put its share-buyback plan on hold to preserve cash.

As oil prices have fallen 70% since June 2014, the effect on the most resilient energy firms has touched a nerve with investors, contributing to anxiety over the ties between the global economy and the oil market. The Dow Jones Industrial Average fell 1.8% Tuesday, dragged down by energy firms like Exxon.

"2016 is going to be tough," said BP Chief Executive Bob Dudley at a news conference in London.

BP, Exxon and their rivals have been smacked by oil prices that fell below $30 a barrel on Tuesday. Chevron Corp. said it would cut spending by $9 billion and lay off 4,000 workers this year after reporting a surprise fourth-quarter loss of more than half a billion dollars. Anglo-Dutch energy giant Royal Dutch Shell PLC indicated last month that its adjusted earnings fell 50% in 2015.

Those four oil giants are on track to report their lowest annual profits since 1998, according to S&P Capital IQ, when there was a similar oil-price downturn. It was a year or two before many of the firms nearly doubled in size through acquisitions of rivals, including the tie ups of Exxon and Mobil and BP and Amoco.

The oil slump has brought pressure to bear on oil companies' relatively high credit ratings. Standard & Poor's downgraded Chevron and Shell and said it would review the latter company's status again once its roughly $50 billion acquisition of smaller rival BG Group PLC is completed. The ratings agency also placed Exxon and others on credit watch. Exxon is one of only a handful of corporations in the world that holds a triple-A rating.

A downgrade is unlikely to affect the companies' ability to operate, but it does shine a spotlight on their spending.

Exxon Chief Executive Rex Tillerson said in a news release that the company would slash spending by 25% this year. That is more than some analysts expected, said Guy Baber, an analyst at Simmons & Company International.

Exxon's decision to pause its buyback program is a major departure from its long-standing practice given that the company has long seen reducing share count as a way to return cash to shareholders.

Excluding years when Exxon did major deals such as for Mobil in 1998 and XTO in 2010, the company has bought back more than 3 billion shares in the last 25 years, according to data compiled by S&P Capital IQ.

Exxon said it plans to continue investing even as prices fall, and the company has avoided mass layoffs in favor of constantly evaluating the productivity of its workers, said Jeff Woodbury, Exxon's vice president and corporate secretary, in a call today with investors.

The long-term damage lower spending could have on the big oil companies' businesses was evident in BP's failure to replace all the oil it pumped this year with new reserves. The company's reserve replacement ratio--an important measure that illustrates the extent an oil company is replenishing the barrels of crude produces every year--was just 61%.

Exxon has yet to disclose any details about its reserve replacement, typically reserving that for later in the year. Chevron, however, was able to replace the oil and gas it pumped at a ratio of 107%.

The prolonged downturn follows a period of frenzied spending from 2004 to 2014, when oil prices were generally on the rise and often broke over $100 a barrel. French energy titan Total SA, for example, has said the oil price at which the company broke even was $110 a barrel in 2014.

Last month, Brent crude prices fell to $27 a barrel.

"This is a cyclical industry, and some of these companies lost sight of that when they built multibillion-dollar projects all over the world," said Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis. "No one was prepared for how low this trough could be and how much it would hurt them if prices went down."

Energy conglomerates such as BP and Exxon have long sold themselves to investors as a safe haven during price crashes. They are buffered by hefty balance sheets and refining operations that turn oil into products like gasoline and see higher demand when prices fall. But BP's refining, chemical and retail arm, known as downstream, was significantly weaker in the fourth quarter than earlier in the year, hurt by a poor performance in its trading business.

BP said Tuesday it would reduce the head count in its refining and marketing arm by 3,000 by the end of 2017, bringing the total number of job reductions announced this year to 7,000.

BP also is struggling to emerge from the shadow of the Gulf of Mexico spill, which it said Tuesday has cost the company $55.5 billion before tax over five years. The company is finalizing a settlement with U.S. governments for $20.8 billion.

The pressure is expected to remain on the oil sector as the glut in supply that has caused the downturn in prices shows no sign of letting up. Analysts and banks have cut their price outlooks for 2016 to an average of $50 a barrel, down from $57 a barrel.

BP's Mr. Dudley, who was among the most vocal last year saying oil prices would remain "lower for longer," said Tuesday that prices won't remain "lower forever."

Write to Sarah Kent at sarah.kent@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

 

(END) Dow Jones Newswires

February 02, 2016 19:44 ET (00:44 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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