Refining margins dent Exxon, Chevron first-quarter results

By Ernest Scheyder

HOUSTON (Reuters) - Weak refining margins dinged first-quarter results for Exxon Mobil Corp XOM.N and Chevron Corp CVX.N, though Chevron's oil production gains outshone its larger rival, which has struggled to turn operations around after recent missteps.

Refining and chemical operations hurt two of the world's largest integrated energy companies for the second consecutive quarter, highlighting concerns about the impact of volatile oil prices on their businesses.

"While the fourth quarter was a disaster for both, Chevron got back on track. Exxon's still trying to get back on the road," said Brian Youngberg, an oil industry analyst at Edward Jones.

U.S. producers are accelerating shale drilling mostly in the Permian Basin of west Texas and New Mexico, the largest U.S. oilfield, lifting the nation's output this year to more than 10 million barrels per day, a new record.

But the higher output has not translated into stronger refining results for the biggest oil companies. Chevron and Exxon are struggling with spotty demand in key markets outside the United States for refined products.

Oil prices CLc1, LCoc1 rose in the first quarter over a year earlier but bounced up and down during the period, zapping profit for the downstream divisions. Rising oil prices typically harm refiners by squeezing their margins on products.

Shares of Exxon fell 3.3 percent to $78.20 while Chevron's stock rose 1.2 percent to $125.75.

(To view graphic on Exxon's quarterly results, click here: https://reut.rs/2Kg4peq)

International market conditions appear to be challenging for most everyone it seems like in the refining sector," said Youngberg. "Demand growth is in Asia and a lot of refining capacity is in Europe and the United States."

Strength in the Chevron division that pumps oil and gas helped overcome the refining weakness and beat Wall Street profit expectations for the quarter. Exxon, though, has struggled in recent quarters in its upstream division, and its results badly lagged expectations. L1N1S40LJ L1N1S40OS

In Exxon's downstream refining unit, profit fell 12 percent, and in the chemical unit, earnings dropped 14 percent.

Profit in Chevron's refining and chemical operations dropped 21 percent to $728 million.

Refining margins in Europe BRT-ROT-REF fell more than 14 percent in the quarter and were on track for a 38 percent drop in the second period, the biggest quarterly decline since the fourth quarter of 2015.

Both companies have been trying different ways to bolster refining operations. Reuters reported earlier this month that they have asked U.S. regulators for exemptions to U.S. biofuels rules that are typically only given to small companies in financial distress. (Full Story)

CHEVRON SHINES UPSTREAM

While Exxon's overall results missed estimates, Chevron easily beat targets set by analysts, largely due to the fruits of its years-long push to bolster oil and gas production operations, especially in liquefied natural gas (LNG) and U.S. shale.

It was a market turnaround for Chevron, which last quarter posted dismal results alongside Exxon.

Exxon has struggled in the past 16 months to unwind some of the biggest bets taken by its former chief executive officer, Rex Tillerson, who left to become U.S. secretary of state in early 2017 before being fired by President Donald Trump last month.

Exxon shares are off about 6.6 percent in the last two years while Chevron has soared 24.5 percent.

(Reporting by Ernest Scheyder; Editing by Jeffrey Benkoe)