Big Trouble For The Big Three U.S. Oil Companies: Financial Disaster In Its Domestic Oil & Gas Sector

There’s no better way to describe what is taking place in the U.S. Big three Oil Companies domestic oil and gas sector than a complete and utter financial disaster. Honestly, I am not exaggerating. The only place ExxonMobil, Chevron, and ConocoPhillips are making decent money is in their non-U.S. or International oil and gas sector.

While it’s no secret that the U.S. shale oil industry continues to be a trainwreck, the damage is now spreading deep into the financial bowels of the Big Three Oil Majors.  Unfortunately, the largest, ExxonMobil, has the worst-performing domestic oil and gas sector in the group. So, it’s no surprise that ExxonMobil was forced to borrow money just to pay dividends. I posted this chart in my last article on ExxonMobil:

As you can see, ExxonMobil’s long-term debt over the four-quarters (Q2-2019 to Q1 2020) increased nearly the same amount as the shortfall between the dividend payouts and the free cash flow.

However, if we look at the Big Three as a group, Q1 2020 wasn’t pretty at all. The next chart combines ExxonMobil, Chevron, and ConocoPhillips Upstream Earnings and Capital Expenditures (CAPEX) from their U.S. sector versus their non-U.S. or International sector. The upstream sector refers to the company’s oil and gas wells.

The Big Three suffered a net $900 million earnings loss from their U.S. upstream sector while spending a whopping $5.6 billion ($5,591 million) in CAPEX. Now compare that to the combined non-U.S. or International upstream earnings of $4.3 billion based on investing $4.6 billion in CAPEX.

In a nutshell, the Big Three Oil Majors spent $5.6 billion in CAPEX in their U.S. oil and gas wells to lose a net $900 million. Now, if we were to combine the U.S. and International upstream earnings for Q1 2020 from this group, it would equal a net earnings gain of $3.4 billion ($4,311 million – $900 million = $3,411 million, or $3.4 billion).

So, if investors don’t look closely, they will see that these Big Three Oil Majors actually made money on their total upstream sector (oil & gas wells) during Q1 2020. However, it all came from their non-U.S. or International sector. It seems to me that ExxonMobil, Chevron, and ConocoPhillips would be in much better financial shape if they CUT their entire U.S. oil and gas operations altogether.

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John F. Donaldson 1 year ago Member's comment

So if oil stays at 10 19 or 25 yes $XOM is in trouble. But no one thinks $WTI will be that low for long. #Oil is trading mid 30s right now and if it trades above 40 in the upcoming weeks. XOM and its dividend will be just fine.

Old Time Investor 1 year ago Member's comment

Increasing profit margins by decreasing sales is not necessarily a good thing. I can make clothes from home and sell them for insane margins. Does that mean I’m going to be rich selling 10 shirts a month?