Exxon and Chevron, buoyed by high oil prices, grab investors for cash 2022-04-29 13:20:00

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The oil majors continue to reap the benefits of higher commodity prices but are not backing down from their plans to reward investors while keeping production roughly stable.

exon

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

chevron corp.

CVX -3.08%

The second-largest US oil company after Exxon said on Friday that it made $6.3 billion in quarterly profit, its highest level in nearly a decade and up from $1.4 billion in the same period last year. The company paid investors $4 billion in dividends and stock buybacks this year.

France

total energy

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The company reported $4.9 billion in profit Thursday, and said it may double its share buybacks this quarter. other European energy giants,

coincidence

PLC and

BP

PLC, will announce first-quarter results next week and is also expected to post solid earnings.

Exxon CEO Darren Woods said the lack of investment in oil and gas during the pandemic cut supplies before the Russian invasion of Ukraine in February, creating uncertainty in global markets.

Despite favorable market conditions, Mr. Woods and Chevron CEO Mike Wirth offered no indication on Friday that they were changing their thinking about increasing production. Energy executives say continued pressure from investors to return more money to shareholders is the primary factor holding back investment in growth.

“We haven’t increased our platform count,” Mr. Wirth said on Friday. “We have not doubled spending.”

To a lesser extent, cost inflation is also deterring production growth as shortages of equipment and labor become prevalent in the US shale patch. Mr. Woods said Exxon is feeling the impact of cost inflation In the Permian BasinIt is the largest US oil field, but it is working to keep oil production growing there without exceeding the cost of oil supply.

Although oil prices have largely stabilized above $100 a barrel, China is battling another outbreak of Covid-19, which has dragged prices down from their highest levels since 2008 and raised fears that the outbreak could dampen economic growth and hurt air travel. Global. Mr. Woods noted that margins on chemical products had fallen sharply in Asia, A possible sign of an economic problem.

separately , US economic growth fell to 1.4% The annual rate in the first quarter, the Commerce Department said this week, was largely due to a widening trade deficit. However, global oil supply growth continued to lag behind demand.

Exxon’s production in the first quarter was down about 4% compared to the previous quarter. Exxon gas station in Pennsylvania.


picture:

Rachel Wisniewski from The Wall Street Journal

“We expected this in 2020, with industry investment levels well below what is needed to offset the depletion,” said Mr. Woods. “That’s why we’ve worked so hard to maintain our capital expenditures during the depths of the pandemic.”

According to FactSet, Exxon’s net income was about 38% lower than analysts had expected. It took 3.4 billion accounting dollars after that I decided to stop the development of Sakhalin Island In the Far East of Russia. Catherine Michaels, Exxon’s chief financial officer, said the Texas-based company plans to increase its $10 billion share buyback program to $30 billion through 2023, a sign of confidence in its underlying financial position as energy demand increases.

Total $4.1 billion took an accounting charge On Wednesday, about the value of its natural gas reserves, citing the effects of Western sanctions targeting Russia, and BP and Shell’s decisions to exit their Russian investments are expected to affect their profitability.

Ms. Michaels, who joined Exxon last year as a The company’s first chief financial officerHe cited the “strong balance sheet and liquidity position of the company” as reasons that could boost its share buyback program.

The company’s upstream earnings rose $1.1 billion from the fourth quarter as oil and gas prices soared in the wake of the Russian invasion of Ukraine and as global demand continued to outpace supply growth.

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Ms. Michaels said, referring to Exxon’s investments in Guyana, LNG and the Permian Basin, as it seeks to increase production.

Chevron said it aims to increase production in the Permian by 15% from 2021 levels this year, up from its previous growth target.

But both Exxon and Chevron said their company-wide production will be roughly flat from or slightly below last year’s levels. Chevron’s production in the United States increased by 109,000 barrels of oil equivalent per day compared to the same period last year, while its international production decreased by 170,000 barrels per day. Exxon’s total production in the first quarter was down about 4% compared to the previous quarter due to weather and other factors.

Chevron also missed analysts’ estimates of earnings, with net income down about 4.5% than expected, according to FactSet.

Shares of Exxon and Chevron were down slightly in Friday afternoon trading.

Even with oil reaching over $100 a barrel, and pressure from the Biden administration on oil companies to pump more to help ease high gasoline prices, investors continued to push companies to stay frugal when it came to oilfield investments. Instead, shareholders are seeking more dividends and buybacks after years of losing money in the sector.

As Europe races to wean itself off Russian energy, US natural gas producers are struggling to meet demand and prices are rising. Here’s how factors, including extreme weather and equipment needs, created a bottleneck amid the war in Ukraine. Illustration: Laura Kammerman and Sharon Shea/The Wall Street Journal

Kevin Holt, Senior Portfolio Manager at

Invesco Ltd.

He said he did not want oil companies to make spending decisions based on current commodity prices that he said would eventually fall.

“We want to make sure you stay disciplined and look at mid-cycle pricing, in terms of how you look at the world,” Holt said, referring to oil prices that are still several years away. “This is first and foremost.”

Exxon said it spent about $4.9 billion in capital in the first quarter, keeping pace with its plan to keep investments relatively modest — and far less than the previous time oil prices hit $100 a barrel. At that time, in the first quarter of 2014, Exxon invested $8.4 billion.

The company last year set a conservative budget of between $20 billion and $25 billion annually through 2027, 17% to 33% lower than previous plans for the pandemic.

Exxon generated about $10.8 billion and about $6.1 billion in free cash flow, a metric that has become especially important to investors after years in which U.S. oil companies generated lackluster returns as they consistently overspend cash flow.

Over the course of nearly a decade, many companies have accumulated more debt and spent more money than they actually earned selling oil and gas, in an effort to increase production. Since the pandemic, companies have pulled back on spending and focused on sending additional money to investors.

Oil companies are now deciding how to spend ever-increasing piles of cash. Many shale oil companies have chosen to return most of them to shareholders via flexible dividends and buybacks; Few of them said they would increase spending and production to some extent.

For Exxon and Chevron, stock buybacks have become key to their efforts to attract investors. Even with oil prices soaring above $100 a barrel, many investors are still wary of the industry after years of poor returns, executives said.

Although the energy sector has recently outperformed the S&P 500, these returns come after a decade in which they fell behind the broader market, said Chevron’s chief financial officer, Pierre Breper.

“The long-term shareholders in our sector have not been rewarded,” Mr. Breeber said. “We still have a long way to go to win back the investors, and how we will win [them] return through efficient capital investment.”

write to Colin Eaton in collin.eaton@wsj.com

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