Chevron, Exxon Facing Risk From Coronavirus: Liquidity, Solvency, Breach of Contracts - Essay Sample

Introduction

The coronavirus is a current global pandemic that has forced companies to slow or halt their operations. In the past days, stock markets in the world have plummeted. For international companies like Chevron and Exxon that rely much on international business, the virus represents a significant risk in revenue decrease, liquidity problems, solvency problems, breached contracts, among others. The potential impacts are discussed below.

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Liquidity Problem

Both Chevron and Exxon depend borrow heavily to manage their operations and meet short-term obligations. The inability to tap credit to finance short-term obligations might force these companies to reduce costs, lay off employees and even minimize investments. Chevron posted a liquidity ratio of 1.07 in 2019 with Exxon posting 0.78 in the same period (Stock Analysis On Net n.d.). Due to the virus and its uncertainties, these ratios might fall further. Chevron has already laid off its downstream workers at London offices.

Profitability

Chevron Corp has already slashed its capital spending and halted stopped its share buyback program. Two thousand twenty capital expenditures are to be lowered by around 20% amounting to $4 billion as well as a reduction in sales deposits in Permian Basin (Ramon 126). Exxon expects a drop in worldwide prices of oil, resulting in disappointing earnings. Chevron has reduced its upstream base business across the USA and international assets by $500 million. Exxon posted a 5.61% gross profit in 2019 while Chevron posted revenues amounting to US$ 158,902 million in 2018 (Stock Analysis On Net n.d.). These figures might be unachievable because of the virus.

Solvency

Coronavirus affects companies' ability to meet their long-term obligations. Chevron CEO has indicated a plan to cut its organic spending by 20% to $16billion while Exxon plans to reduce their portfolios. Chevron capital expenditure expects to decrease by 30% to about $7 billion lower than the approved budget. Exxon has announced plans to cut their spending in the face of low oil prices, sending their shares to a 17-year low (McWilliams 20).

Conclusion

In conclusion, these companies should adopt measures to prevent bankruptcy. The companies should diversify operations like Exxon spending on oil exploration off the coast of Guyana to supplement chemicals production in the US Gulf Coast. Non-essential workers should work from home, and even some of them laid off to slash costs. Because of coronavirus unclear ending, Chevron and Exxon should act to protect their employees and address business risks, while helping to mitigate the outbreak.

Works Cited

"Stock Analysis On Net". Stock Analysis On Net, 2020, https://www.stock-analysis-on.net/.

McWilliams, Gary. "Exxonmobil Evaluating Significant Near-Term Capital And Operating Expense Reductions". Exxonmobil, 2020. https://www.reuters.com/article/us-global-oil-exxon-mobil/exxon-pledges-significant-spending-cuts-amid-coronavirus-oil-slide-idUSKBN2133Y9

Ramon, San. "Chevron Announces Actions In Response To Market Conditions". Chevron Corporation, 2020. https://www.chevron.com/stories/2020/q1/chevron-announces-actions-in-response-to-market-conditions