The carnage continues in the U.S. major oil industry as they sink further and further in the RED. The top three U.S. oil companies, whose profits were once the envy of the energy sector, are now forced to borrow money to pay dividends or capital expenditures. The financial situation at ExxonMobil, Chevron and ConocoPhillips has become so dreadful, their total long-term debt surged 25% in just the past year.
However, the rapidly falling oil price, since the latter part of 2014, totally gutted the profits at these top oil producers. In just five short years, ExxonMobil’s net income declined to $7.8 billion, Chevron reported its first $460 million loss while ConocoPhillips shaved another $3.6 billion off its bottom line in 2016. Thus, the combined net income of these three oil companies in 2016 totaled $3.7 billion versus $80.4 billion in 2011.
The combined CAPEX spending from these three oil companies fell 29% in 2016 versus 2015 and 46% since 2013. Basically, ExxonMobil, Chevron and ConocoPhillips have cut their combined CAPEX spending in half in the past three years. This is bad news for either building or at least maintaining oil production in the future.
Here we can see that the large dividend payouts by these three oil companies impacted their bottom line much worse than the figures shown in the Free Cash Flow chart above. Thus, the free cash flow minus dividend payouts provides us evidence that these oil companies have been seriously in the RED since 2013, not just the past two years displayed in the Free Cash Flow chart.
As we can see, the group’s free cash flow minus dividends was a negative $32.8 billion in 2015 and a negative $29 billion last year. Of course, these three companies may have sold some financial investments or assets to reduce these negative values, but a company can’t stay in business for long by selling assets that it would need to use to produce oil in the future.
When these three companies still enjoyed positive free cash flow in 2011 and 2012, after paying CAPEX and dividends, their long-term debt did not increase. However, as their operating profits really started to decline, the debt on their balance sheets increased significantly. As we can see, the combined long-term debt in these three companies balance sheets ballooned from $40.8 billion in 2012 to $95.7 billion in 2016.