It pays to diversify

When you are a US crude producer, it pays to diversify.

First quarter income reports, reflecting the brunt of the plunge in oil to near six-year lows, are beginning to trickle out. And the underlying message so far seems to be: majors with presence across the spectrum – from exploration to refining to chemicals and marketing – are weathering the storm better than the independents.

ExxonMobil saw its US upstream business post a loss, but a $1bn tail wind from strong refining margins meant that overall downstream profits nearly doubled to $1.7bn even though oil product sales held flat at last year’s level of 5.8mn b/d. That helped stem the fall in the major’s total income to 46pc from a year earlier to $4.9bn. 

Ditto for Chevron. Chevron’s upstream business earnings fell to $1.56bn from $4.3bn a year earlier. But a surge in downstream earnings to $1.42bn from $710mn helped limit the fall in overall net income to $2.6bn from $4.5bn a year earlier, down 42pc.

But both Hess and ConocoPhillips – the two large independents with earnings out so far – have posted losses in the first quarter. Both are lowering their rig counts further for the rest of the year as they seek to conserve cash.

Hess reduced its full-year capex guidance further, to $4.4bn from the $4.7bn it had set in January, which was 16pc lower than the $5.6bn spent in 2014. The 2014 capex was 10pc lower than a year earlier.

ConocoPhillips, facing its first test of whether the move to shed all refining and downstream business was sound, expects US output to slow further in the second half of the year. But the start of projects in Australia and Canada is providing some cushion, going forward.

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