On Friday, both companies outlined deep cuts in investment in the Permian shale basin, the top U.S. oilfield where growth has made America the world's top oil producer and a net exporter in decades for the first time. Because of lockdowns to fight the coronavirus pandemic, they each announced global shut-ins of up to 400,000 barrels per day (bpd) this quarter.
Since the market crashed in March, Exxon and Chevron have been sidelining Permian drilling equipment. Nearly 70 percent of U.S. crude prices plunged this year to below $20 a barrel and traded for the first time in negative territory on April 20.
Oil and gas output rose in the first quarter at both U.S. producers with the companies racing to produce 1 million barrels per day in the Permian. Then demand for fuel dropped nearly a third due to travel and business lockdowns, while a flood of Russian and Saudi oil hit the market as they abandoned cutbacks in production.
"We'd want to bring back activity to the Permian when we see prices recover," Pierre Breber, Chief Financial Officer of Chevron, said in an interview.
The two oil majors spent heavily in the last two years to expand in the Permian. Shale production can be brought on faster than deepwater and other oil exploration projects but requires near-constant drilling to maintain output.
Exxon's biggest cuts will come in the Permian, "where investment in the short-cycle is more readily adjusted," Exxon Chief Executive Darren Woods said.
He added that because shale wells at first produce large volumes and then decline rapidly, it's "beneficial in the long term" to ensure "we're bringing those high production rates into a more conducive market." Exxon will sideline 75 percent of its Permian drilling rigs, keeping 15 operational.
The firm posted a first-quarter loss of $610 million, its first-quarter loss in three decades, on a written down inventory of nearly $3 billion reflecting lower margins and prices. Chevron posted an asset sales profit of $3.6 billion and improved refining results, and also said it would further cut spending this year.
Both companies are going to cut spending budgets this year by 30 per cent. Chevron has cut its capital spending budget to $14 billion and Exxon has set $23 billion in 2020 spending, the lowest in four years.
Although their results surpassed the reduced estimates of Wall Street, Exxon shares fell 7% to $43.14, while Chevron fell 2.8% to $89.44.
Additional spending cuts from Chevron will help it pay for its dividend and make it "a defensive holding of energy and a relative safe haven in very stormy seas," Jennifer Rowland, an analyst with Edward Jones, said.
Exxon's balance sheet "is strong enough to withstand the current environment," but this year it needs oil prices of around $75 per barrel to break even against around $50 for its peers on average, RBC Europe's Biraj Borkhataria said
U.S. crude futures have recovered a little since they settled in negative territory on April 20, but for many, the current price of around $19 per barrel remains below production costs. World oil prices are around $26 per barrel.
Both Chevron and Exxon kept their quarterly dividends on hold.
Other oil majors also slash investments and look for ways to preserve cash. For the first time since World War Two, Royal Dutch Shell cut its dividend and reported nearly half down on first-quarter profits compared to a year-ago. First-quarter profit for BP Plc tumbled by two-thirds and its debt climbed to its record highest.