A tale two U.S. oil heavyweights: Exxon crashes, Chevron crushes
For the biggest U.S. oil explorers, the first quarter was a study in contrasts: Chevron Corp. beat every analyst estimate, while larger rival ExxonMobil Corp. fell short on both production and profit.
The performances underscore the challenges facing the two descendants of John D. Rockefeller’s sprawling 19th century empire. For Chevron, it’s about rewarding long-suffering investors who had funded costly natural gas projects in Australia for more than a decade. For Exxon, chief executive Darren Woods is tasked with rebuilding an asset base that analysts say didn’t receive enough investment over the past 10 years.
Chevron took full advantage of crude’s rally during the period with earnings and output potentially raising the chance of share buybacks later this year, though none were announced on Friday. Exxon, meanwhile, posted its worst firstquarter production figure since the Mobil merger in 1999.
“Exxon’s strategy is at odds with what the market is currently looking for,” said Mark Stoeckle, who manages US$2.4 billion including Exxon and Chevron shares at Adams Express Co. in Boston. “Chevron’s a darling right now. It’s the juxtaposition of a company with high investment and little production growth with one that’s harvesting cash.”
Investors are rewarding Chevron, given their preference for immediate payback after the 2014-16 oil price crushed returns. Meanwhile, Exxon is a long-term bet, with Woods anticipating capital expenditure swelling to more than US$30 billion a year well into the next decade.
“Chevron was very, very strong on really good upstream,” said Jason Gammel, a London-based analyst at Jefferies LLC. “Exxon was a bit disappointing.”
The result: Exxon tumbled as much as 5.4 per cent in New York, the worst intraday performance in 2 1/2 months. Chevron climbed two per cent.
Virtually all of Exxon’s rivals posted healthy results this week, reaping the benefits of rebounding crude prices. Royal Dutch Shell Plc, Statoil ASA and Eni SpA reported their best performances since 2014, when a barrel of oil cost more than US$100. Brent crude closed this year’s first quarter at US$70 and has since marched toward US$75.
Production surged for Exxon’s peers as well, with French giant Total SA reporting record output. The result still weren’t enough to satisfy all investors, however. Shell shares declined amid questions about its commitment to a buying back shares while Eni slipped after disclosing weak cash flow.
As for Exxon, Woods has said it’s wise to invest now when others are reining in spending and returning cash to shareholders.
Irving, Texas-based Exxon pumped the equivalent of 3.889 million barrels a day in the quarter, the first sub-four million figure for that time of year in almost two decades. The number was also lower than all seven estimates from analysts in a Bloomberg survey. The company’s first-quarter profit of US$1.09 a share was also below analyst estimates.
Chevron, in comparison, earned US$1.90 a share during the first three months of the year, well in excess of the US$1.47 average of 18 estimates in a Bloomberg survey of analysts. The company also pumped more crude and natural gas than observers anticipated, Chevron said Friday in a statement, enhancing the benefits from rallying oil prices.
Major oil producers in Europe, meanwhile, have posted some of their best quarterly results in years amid an oil rally driven by OPECled production cuts, geopolitical threats and swelling demand.
With inbuilt production growth from previous years’ spending, Chevron increased its dividend 3.7 per cent earlier this year. But what investors are really looking for is for a resumption of its share buyback program that was suspended in 2015.
In March, CEO Mike Wirth said he’d like to do this but cautioned that board members “want to see the cash flow materialize.”
Woods has said buybacks rank below dividends and investments in five key long-term projects from Brazil to Papua New Guinea. Those projects are crucial to future earnings and further opportunities can be more cheaply bought as are rivals retreating, he said in March.