Exxon and Chevron, buoyed by high oil prices, are flooding investors with cash

Big oil companies continue to reap the benefits of high commodity prices, but are not backing down from plans to reward investors while keeping production roughly flat.

ExxonXOM -0.53%

Mobil Corp. said on Friday it collected $5.5 billion in first-quarter profits, more than double the same period last year. The US oil giant said it would triple its share buybacks, but would keep oil spending at a modest pace.

Chevron Corp.

CLC -1.24%

, the second-largest U.S. oil company after Exxon, said on Friday it posted quarterly profit of $6.3 billion, its highest in nearly a decade and down from about $1.4 billion in the same period l last year. The company has paid out $4 billion to investors through dividends and stock buybacks this year.

TotalEnergies TTE in France 0.46%

reported earnings of $4.9 billion on Thursday and said it could double its share buybacks this quarter. Other European energy giants, Shell PLC and BP PLC, will release their first quarter results next week and are also expected to post strong profits.

Exxon Chief Executive Darren Woods said underinvestment in oil and gas during the pandemic had tightened supplies ahead of Russia’s invasion of Ukraine in February, which sparked uncertainty. uncertainty in global markets.

Although oil prices have largely held above $100 a barrel, China is battling a new outbreak of Covid-19, pushing prices down from the highest levels since 2008 and raising fears that the epidemic does not harm economic growth and would harm global air travel. Woods noted that chemical margins have fallen sharply in Asia, a potential sign of economic difficulties.

Separately, U.S. economic growth fell to an annual rate of 1.4% in the first quarter, the Commerce Department said this week, largely due to a growing trade deficit. Yet global oil supply growth continued to lag demand.

Exxon’s first-quarter production was down about 4% from the prior quarter. An Exxon gas station in Pennsylvania.


Photo:

Rachel Wisniewski for The Wall Street Journal

“We anticipated this in 2020, with levels of industry investment well below what was needed to offset exhaustion,” Woods said. “That’s why we worked so hard to preserve our capital expenditure at the height of the pandemic, to ensure that additional production was available to meet the eventual recovery.”

Exxon’s net profit was about 38% below analysts’ expectations, according to FactSet. It took on a $3.4 billion accounting charge after deciding to halt operations at its development on the island of Sakhalin in Russia’s Far East. Even so, the Texas-based company plans to grow its $10 billion share buyback program to $30 billion through 2023, a sign of confidence in its underlying financial health as demand for energy is increasing, said Kathryn Mikells, chief financial officer of Exxon.

Total on Wednesday took a $4.1 billion accounting charge over the value of its natural gas reserves, citing the impacts of Western sanctions targeting Russia, and decisions by BP and Shell to pull out of their Russian investments are expected to weigh on their profitability.

Ms. Mikells, who joined Exxon last year as the company’s first chief financial officer, cited the company’s “strong balance sheet and liquidity position” as reasons she could strengthen its buyback program. actions.

The company’s upstream earnings rose $1.1 billion from last quarter as oil and gas prices soared following Russia’s invasion of Ukraine and global demand continued to outpace supply growth.

SHARE YOUR THOUGHTS

What is your vision of the oil industry? Join the conversation below.

“Especially given the current context and market environment, we are working very hard to increase low-cost barrel production in line with our overall plan,” Ms. Mikells said, highlighting Exxon’s investments in Guyana, the liquefied natural gas and the Permian Basin, America’s premier oil field, where it is seeking to increase production.

Chevron chief executive Mike Wirth said his company aims to increase production in the Permian by 15% from 2021 levels this year.

“Chevron is doing its part to increase domestic supply,” it said in a press release.

But Exxon and Chevron said company-wide production would be roughly flat at last year’s levels or down slightly. Chevron’s U.S. production increased by about 109,000 barrels of oil equivalent per day compared to the same period last year, while its international production fell by 170,000 barrels per day. Exxon’s overall first-quarter production was down about 4% from the prior quarter due to weather and other factors.

The decision to ramp up production in the Permian even further this year comes as cost inflation has become rampant in the region and a shortage of equipment and labor has limited the amount of additional crude. that companies can pump.

Chevron also missed analysts’ earnings estimates, with net profit about 4.5% lower than forecast, according to FactSet.

Shares of Exxon and Chevron fell slightly in early trading on Friday.

Even with oil reaching over $100 a barrel and pressure from the Biden administration for oil companies to pump more to help mitigate high gas prices, investors have continued to push companies to remain frugal in with regard to investments in the oil fields. Instead, shareholders are demanding dividend increases and buybacks after years of losing money to the sector.

As Europe rushes to wean itself off Russian energy, US natural gas producers are struggling to meet demand and prices are rising. Here’s how factors like extreme weather and equipment needs created a bottleneck amid the war in Ukraine. Illustration: Laura Kammermann and Sharon Shi/WSJ

Kevin Holt, Senior Portfolio Manager at Invesco ltd.

said he doesn’t want oil companies to make spending decisions based on current commodity prices, which he says will eventually come down.

“We want to make sure you stay disciplined and look at mid-cycle prices, in terms of a worldview,” Holt said, referring to oil prices several years out. “It’s before all.”

Exxon said it spent about $4.9 billion on capital in the first quarter, in line with its plan to keep investments relatively modest — and well below the last time oil prices hit more than $100 a barrel. . At the time, in the first quarter of 2014, Exxon had invested $8.4 billion.

Last year, the company set a conservative budget of $20 billion to $25 billion a year through 2027, 17% to 33% lower than pre-pandemic plans.

Exxon generated about $10.8 billion and Chevron about $6.1 billion in free cash flow, a metric that has become particularly attractive to investors after years of lackluster returns from U.S. oil companies. as they consistently exceeded cash flow.

For about a decade, many companies accumulated huge debts and spent more money than they made by actually selling oil and gas, in an effort to increase production. Since the pandemic, companies have cut spending and focused on sending extra cash to investors.

Oil companies are now deciding how to spend increasing amounts of money. Many shale companies have chosen to return most of it to shareholders via flexible dividends and buyouts; a few said they would increase spending and production to some extent.

For Exxon, stock buybacks have become key to its efforts to lure investors, but some on Wall Street would like to see the Texas-based company reduce its debt further, at what could be a high point for oil prices. , said Ryan Todd, analyst at Piper Sandler. Exxon said its leverage ratio was in a target range of 20-25%.

“There has been growing pressure from shareholders on companies to position themselves to be more resilient throughout the [commodities] cycle,” Todd said, noting that big oil companies tend to buy back shares when they have extra cash and their stock prices are high.

How the biggest companies work

Write to Collin Eaton at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

About Natalee Broderick

Check Also

Bull Vs Bear: Top 5 Triggers That May Dictate The Stock Market This Week

Bull versus bearish: After the rout of the American markets, the Indian stock market fell …