Big oil majors continue to benefit from high commodity prices but are not backing away from plans to reward investors while production is roughly flat.
Exxon XOM -2.24% Mobil Corp. announced on Friday that it posted a profit of $5.5 billion for the first quarter, more than double the same period last year. The US oil giant said it would triple its share buybacks but keep oilfield spending at a modest pace.
chevron corp CVX -3.16% , the second-largest US oil company after Exxon, announced on Friday that it posted quarterly profit of $6.3 billion, the highest in nearly a decade and an increase of about $1.4 billion US dollars in the same period last year. The company has paid out $4 billion to investors this year in the form of dividends and share buybacks.
France’s TotalEnergies TTE -1.91% on Thursday reported a profit of $4.9 billion and said it could double its share buybacks this quarter. Other European energy giants, Shell PLC and BP PLC, are due to release first quarter results next week and are also expected to report strong earnings.
Exxon chief executive officer Darren Woods said underinvestment in oil and gas during the pandemic tightened supplies ahead of Russia’s invasion of Ukraine in February, causing uncertainty in global markets.
Despite favorable market conditions, Mr. Woods and Chevron CEO Mike Wirth gave no indication Friday that they had changed their minds about increasing production. Energy executives say continued pressure from investors to return more money to shareholders is the key factor holding back investment in growth.
“We have not increased our number of drilling rigs,” Mr. Wirth said on Friday. “We haven’t increased spending.”
To a lesser extent, cost inflation is also holding back output growth as equipment and labor shortages spread in the US shale field. Mr. Woods said Exxon is feeling the effects of cost inflation in the Permian Basin, the top US oil field, but is working to continue increasing oil production there without exceeding oil supply costs.
Though oil prices have largely stayed above $100 a barrel, China is battling another outbreak of Covid-19, pulling prices down from their highest levels since 2008 and raising concerns the outbreak will hurt economic growth and global air travel could affect. Mr. Woods noted that chemical product margins in Asia have fallen sharply, a possible sign of economic troubles.
Separately, U.S. economic growth fell at a 1.4% annual rate in the first quarter, the Commerce Department said this week, largely due to a widening trade deficit. However, global oil supply growth continues to lag behind demand.
Exxon’s production fell about 4% sequentially in the first quarter. An Exxon gas station in Pennsylvania.
Photo: Rachel Wisniewski for The Wall Street Journal
“We expected this in 2020 as industry investment levels were well below what was needed to offset the depletion,” said Mr. Woods. “That’s why we’ve worked so hard to preserve our investments in the depths of the pandemic.”
According to FactSet, Exxon’s net income was about 38% lower than analysts had expected. It had to pay a $3.4 billion accounting fee after deciding to stop operating its development on the island of Sakhalin in Russia’s Far East. Even so, the Texas-based company plans to increase its share buyback program from $10 billion to $30 billion by 2023, a sign of confidence in its underlying financial health amid rising energy demand, said chief financial officer Kathryn Mikells Officers from Exxon.
Total on Wednesday took a $4.1 billion accounting fee on the value of its natural gas reserves, citing the impact of Western sanctions on Russia and decisions by BP and Shell to exit their Russian investments are expected to hurt their profitability will burden.
Ms. Mikells, who joined Exxon last year as the company’s first CFO, cited the company’s “strong balance sheet and cash position” as reasons why it could ramp up its share buyback program.
The company’s upstream revenue increased $1.1 billion from the most recent quarter as oil and gas prices rose sharply following the Russian invasion of Ukraine and global demand continues to outpace supply growth.
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“Especially given today’s context and market environment, we are working very hard to ramp up production of low-cost drums in line with our overall plan,” said Ms. Mikells, citing Exxon’s investments in Guyana, LNG and the Permian Basin. where production is to be increased.
Chevron said it is aiming to increase production in the Permian this year by 15% from 2021 levels, up from its previous growth target.
But both Exxon and Chevron have said their company-wide output will remain about the same or decline slightly compared to last year’s levels. Chevron’s U.S. production increased by about 109,000 barrels of oil equivalent per day compared to the same period last year, while international production fell by 170,000 barrels per day. Exxon’s overall production fell about 4% in the first quarter compared to the previous quarter due to weather and other factors.
Chevron also missed analysts’ earnings estimates, with net income coming in about 4.5% lower than expected, according to FactSet.
Exxon shares fell about 2% on Friday, while Chevron fell about 3%.
Even as oil fetches more than $100 a barrel and the Biden administration is pressuring oil companies to pump more to curb high gasoline prices, investors have continued to urge companies to be prudent in investing in oil fields. Instead, shareholders are looking for dividend increases and buybacks after years of losses in the industry.
As Europe struggles to wean itself off Russian energy, American natural gas producers are struggling to meet demand and prices are rising. Here’s how factors like extreme weather and equipment needs led to a shortage in Ukraine during the war. Illustration: Laura Kammermann and Sharon Shi/WSJ
Kevin Holt, senior portfolio manager at Invesco Ltd., said he doesn’t want oil companies making spending decisions based on current commodity prices, which he thinks will eventually fall.
“We want to make sure you stay disciplined and look at mid-cycle prices in terms of how you see the world,” Mr Holt said, referring to oil prices that are several years away. “That’s in the first place.”
Exxon said it issued about $4.9 billion in capital in the first quarter, in line with its plan to keep capital expenditure relatively modest — and far lower than the last time oil prices surpassed $100. reached dollars per barrel. Back then, in the first quarter of 2014, Exxon had invested $8.4 billion.
The company last year set a conservative budget of $20 billion to $25 billion annually through 2027, down 17% to 33% from its pre-pandemic budget.
Exxon generated about $10.8 billion and Chevron about $6.1 billion in free cash flow, a metric that has become of particular interest to investors after years of US oil companies posting lackluster returns as they consistently over-exploited cash flow expenses.
For about a decade, many companies have racked up huge debts and spent more money than they made from actually selling oil and gas to increase production. Since the pandemic, companies have cut spending and focused on sending additional money to investors.
Oil companies are now deciding how to spend the growing mountains of money. Many shale companies have chosen to return most of it to shareholders via flexible dividends and buybacks; some have said they would increase spending and production to some degree.
For Exxon and Chevron, share buybacks have become key in their efforts to win back investors. But even with oil prices above $100 a barrel, many investors are still wary of the industry after years of poor returns, executives said.
Although the energy sector has outperformed the S&P 500 index recently, those returns follow a decade in which it has lagged the broader market, Chevron CFO Pierre Breber said.
“Shareholders in our industry have not been rewarded in the long term,” said Mr. Breber. “We still have a long way to go in winning back investors and how we will win [them] behind lies in efficient capital investment,” he added.
write to Collin Eaton at [email protected]
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