Exxon, Chevron Report Blockbuster Profits Amid Oil Price Rally

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It was set to be a successful quarter for energy names thanks to the continued surge in oil prices and it did not disappoint: Earlier today, Chevron reported exceptional third quarter results, beating the up and down, with EPS of $ 2.96 (above expectations of $ 2.21), the highest since Q1 2013 due to improving market conditions, which led the energy giant to weigh more on share buybacks while controlling spending after soaring natural gas prices and oil refining yields pushed free cash flow of the US supermajor to an all-time high. A few moments ago, Exxon Mobil also posted its biggest profit in seven years with free cash flow exceeding estimates and surprisingly pledging to spend up to $ 10 billion on share buybacks over the past 12 years. to the next 24 months.

Looking at the press release, Exxon earned an adjusted amount of $ 1.58 per share in the third quarter, just above the average estimate of $ 1.56 after adjustment. net profit reached $ 6.8 billion, the highest since 2014. A year ago, the company lost $ 650 million amid falling oil prices.

Here’s what Exxon reported for the third quarter:

  • Adjusted EPS $ 1.58, beat estimate of $ 1.56 (GAAP BPA $ 1.57 vs. loss / share 15.00 cy / year).

  • Upstream profit of $ 3.95 billion vs. a loss of $ 383.0 million year-on-year, faded away estimate of $ 4.47 billion

  • Downstream profit of $ 1.26 billion vs. a loss of $ 231.0 million year-on-year, beat estimate $ 830.1 million

  • Chemical profits of $ 2.14 billion vs. $ 661 million year-on-year, beat estimate of $ 2.11 billion

  • Blue-chip chemicals sales 6,672 kt, + 0.7% year-on-year

  • Sales of downstream petroleum products 5,327 kbd, + 6.1% y / y

  • Refinery throughput 4,051 mb / d, + 7.8% y / y

Highlights of the 3rd quarter:

Comparing Q3 to Q2 earnings, the company found a $ 2.1 billion improvement in earnings:

Production:

  • Production 3,665 mboe / d, -0.2% y / y, estimate 3,644

  • Production 8,110 mmcfe / d, -2.5% y / y, estimate 8,345

Cash flow:

  • Operating cash flow $ 12.09 billion vs. $ 4.39 billion year-on-year, beat estimate $ 11.22 billion

  • Cash flow from operations and sale of assets $ 12.11 billion vs. $ 4.49 billion year-on-year

In terms of cash usage, the company spent $ 3.1 billion on property, plant and equipment, with the remainder being spent on debt repayment ($ 3.8 billion) as the company continued to strengthen its balance sheet and dividends ($ 3.7 billion, bringing the cumulative total to $ 11.2 billion).

CapEx:

  • Capital spending $ 3.85 billion, -6.8% year-on-year, estimate $ 3.82 billion (range $ 3.47 to $ 4.50 billion)

A visual summary:

As the following Y / Y bridge shows, the majority of Q3 2020 gains come from upstream price increases, with improvements in chemical and downstream margins contributing to the rest:

Commentary and context:

  • On track to achieve 25-year emission reduction plan by year-end

  • Sees a 4x increase in low carbon spending

  • Sees higher upstream volumes in Q4

  • “Our three core businesses delivered positive earnings in the quarter, with strong operations and cost control, as well as increased achievements and increased demand for fuels,” said Darren Woods, President and CEO.

  • Woords: “Next month, the board will finalize our business plan which supports investment in high-yield, industry-beneficial projects, as well as a growing list of low-emission, strategic and financially profitable business opportunities. carbon … expect to increase the level of spending on low-emission energy solutions by four times over the previous plan, adding high-yield projects and initiating development investments in large hub projects that require additional political support. “

  • The 2021 investment program is expected to be near the low end of the $ 16- $ 19 billion range, so no immediate increase in capital spending, which will result in continued high prices as U.S. supply fails. will not rebound.

  • In the 4th quarter, the board of directors will formally approve the business plan, with planned capital spending of $ 20- $ 25 billion per year

  • Exxon expects cumulative low-carbon investments to amount to around $ 15 billion from 2022 to 2027

  • Predicts an increase in energy costs having an impact on the prices of refined products in Europe and Asia in 4Q

But perhaps the most surprising aspect of Exxon’s exit is the resumption of the company’s share buybacks for the first time since 2016. The company said it plans to spend up to $ 10 billion on buybacks starting next year.

Following renewed interest from activist investors, Exxon and Chevron – America’s two largest oil and gas producers – are finally prioritizing shareholders over capital spending, despite the energy crises in Europe and China and widespread concerns about inflation and the supply of fossil fuels. The crucial question for executives of both companies when they appear on their respective conference calls with analysts later Friday will be whether some of the additional cash will be used to boost crude and gas production in 2022.

Exxon is expected to use most of its additional cash flow to cover dividends and repay debt, which peaked on a net basis at nearly $ 70 billion at the end of 2020. The company’s four main rivals – Chevron, TotalEnergies SE, Royal Dutch Shell Plc and BP Plc – are also using this year’s commodity rally to buy back shares. Shell and BP were forced to cut dividends last year.

One of the main reasons Exxon and Chevron oil generate record cash flow is due to the major budget cuts made during the oil market collapse caused by last year’s pandemic. Chevron’s spending year-to-date was 22% lower than the period a year earlier. But with record natural gas prices in Europe and Asia, and robust crude prices everywhere, there are growing incentives to increase investment in fossil fuels.

Looking ahead, the company looked optimistic into the fourth quarter, expecting solid improvement in its 3 key segments, as well as continued “downsizing” of the business.

And assuming $ 60 worth of oil, the company expects profits to reach $ 30 billion by 2025, nearly triple the 2019 level, with cost reductions expected to exceed $ 6 billion d ‘by 2023 compared to 2019.

Finally, with US oil E&P under the microscope of the net zero lobby, the company has pledged $ 15 billion in low-carbon investments from 2022 to 2027. Needless to say, this money is being taken away from its expansion. historical activities, which is why the price of raw materials will continue to rise.

After strong earnings and the surprise announcement of a $ 10 billion buyback, the stock price surged ahead of the stock market to its June highs and is expected to continue its upward climb as the average rating of XOM is “Hold” and the average sales target price is only $ 68.52. Expect a flurry of upgrades in the coming days.

By Tom Kool for Oil Octobers

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