Chevron will eliminate up to 7,000 jobs, the company said Friday, a grim disclosure that accompanied its third-quarter financial results that were marred by a plunge in profits fueled by weak prices for crude oil, although refinery and retailing profits surged.
For the quarter that ended in September, Chevron earned $2.04 billion on revenue of $34.32 billion.
Compared to the year-ago third quarter, profits plunged 63.6 percent and revenue tumbled 37.2 percent, San Ramon-based Chevron reported.
“We anticipate reducing our employee workforce by 6,000 to 7,000,” John Watson, Chevron’s chief executive officer, said in a statement.
“We are working on reducing costs throughout the company,” Watson told analysts during a conference call Friday to discuss the financial results.
The job cuts are being driven by Chevron’s decision to slash capital expenditures and spending on exploration over the next few years.
Upstream operations, consisting of exploration, development and production, produced earnings of $59 million in the third quarter, down 98.7 percent from year-ago profits $4.65 billion.
Downstream operations, consisting primarily of refinery and retailing operations, totaled $2.21 billion, up 59.4 percent from the year-ago third quarter.
Chevron’s U.S. downstream operations achieved a profit of $1.25 billion in the third quarter, up 54.4 percent from a year ago. Those operations include the company’s refineries in Richmond and El Segundo.
The increase was due, in part, to higher profit on sales of refined products, such as gasoline.
The earnings results topped Wall Street’s expectations. Per-share profit was $1.09 and analysts had anticipated earnings of 79 cents a share.
A worldwide slump in crude-oil prices has staggered the major energy giants, including Chevron.
“Oil prices went up pretty fast, and prices came down a little harder than we thought,” Watson said during the conference call.
Prices for crude oil peaked around $100 a barrel in July 2014. On Friday, West Texas Intermediate crude oil was around $46 and Brent North Sea crude was around $49.
“The grim reality is we have oil prices in the $40s,” Watson said. “It’s tough sledding. It’s a challenge. But we are taking it on by reducing costs. We are trying to size the organization at the right level. I can’t control oil prices. I can only control our cost and spend.”
The tough times could continue for quite a while for Chevron and other oil giants, said Tom Kloza, global head of energy analysis with Maryland-based Oil Price Information Service, which tracks the energy markets.
“It’s going to take years for prices to get back to $100 a barrel,” Kloza said. “For a long time, the floor for oil prices was $80 a barrel. We believe that $80 is going to be the new ceiling. For the next 12 to 18 months, $40 to $60 will be more likely.”
Still, Chevron and other oil companies have little choice but to curb spending and investments on new projects, said Pavel Molchanov, an analyst with investment firm Raymond James.
“Practically every day, we get a reminder of how energy companies, large and small, U.S. and international, are cutting back on their capital budgets, domestically and offshore,” Molchanov said. “Everybody is in an austerity mode and Chevron is no exception.”
Capital and exploration spending for 2016 will range from $25 billion to $28 billion, which would be roughly 25 percent below the budget for 2015, Chevron said.
Spending for 2017 and 2018 will be reduced to the range of $20 billion to $24 billion, the energy giant predicted.
In contrast, Chevron had budgeted $35 billion in capital and exploration spending for 2015.
“We will emerge on the other side of this downturn leaner and better,” Watson said.
In trading Friday, Chevron shares rose 99 cents, or 1.1 percent, to $90.88.