A tale of two oil giants with struggling strategies in downturn
As industry dips, Exxon funds slew of projects around globe as Chevron sticks to austerity
Everyone from environmentalists to investors is beating up on fossil fuels, and American energy giants Exxon Mobil and Chevron are taking increasingly diverging approaches as they try to weather the storm.
The problem is, neither strategy is working right now.
Exxon is using the downturn in oil, gas and chemical prices as an opportunity to unleash its giant balance sheet to fund a slew of projects around the world. Chevron is sticking with austerity — to such an extent that CEO
Mike Wirth admitted he sounds like “a broken record” repeating a mantra of financial discipline.
Both companies posted their worst results in years recently, dragged down by weak performance across most business lines. The origin of much of their problems can be traced back to America’s shale revolution, which in little over a decade ended a domestic shortage of oil and gas and created a seemingly limitless source of supply, pushing energy prices lower.
Exxon and Chevron have also become lightning rods in the backlash against fossil fuels. As pressure mounts for the industry to do more to address environmental concerns, investors have increasingly fled the sector. Energy now accounts for just 3.8 percent of the S&P 500, down from 16 percent in 2008.
Both companies are “competing in a sector that has systematically destroyed value for investors over the past decade,” said Mark Stoeckle, a Boston-based fund manager at Adams Funds with $2.5 billion of assets. “It’s going to take time, and consistent results to convince the investing public” otherwise.
Exxon Mobil CEO Darren Woods remains steadfast in his pursuit of a $35 billion-a-year capital investment plan that aims to build oil and gas projects from Guyana to Mozambique. It’s a classic counter-cyclical strategy: Invest while prices are low and competitors are pulling back, and reap the rewards when the commodity cycle turns.
“While we would prefer higher prices and margins, we don’t want to waste the opportunity that this low-price environment provides,” Woods said on a conference call.
In contrast, Chevron sees shale as having fundamentally changed the market. The company reported its biggest quarterly loss in a decade after writing down the value of North American gas fields.
The Chevron boss reaffirmed his commitment to cutting costs, increasing capital efficiency and churning out cash to buy back shares through commodity cycles. Flagship projects in foreign locations are largely on the back burner; the real gains are to be made in shale in West Texas.
“Grinding away on enormous unconventional positions may not be quite as glamorous as doing the big projects in terms of giving you a lot of things to talk about, but it really drives strong financial outcomes,” Wirth said.
While Chevron made a “brilliant decision” to walk away from a $32 billion agreement to buy Anadarko Petroleum last year, there’s lingering concern that the oil major may still seek a deal to bulk up for growth, according to Stoeckle. Investors are concerned its growth and spending levels are too low while Exxon’s are too high, he added.