Big oil companies are raking
in their highest profits
since the onset of the coronavirus
pandemic, but they plan
to continue spending sparingly
to boost production despite
higher commodity prices.
Exxon Mobil Corp. reported
$4.7 billion in second-quarter
profit Friday, while rival Chevron
Corp. reported $3.1 billion
in quarterly profit.
The results represented a
dramatic turnaround from a
year earlier, when Exxon reported
a quarterly loss of $1.1
billion and Chevron lost $8.3
billion as demand for oil and
gas plummeted due to the
closing of economies world- wide due to the virus.
Some of the largest European
oil companies also
showed strong results earlier in
the week. Royal Dutch Shell
PLC reported $5.5 billion in net
income, while TotalEnergies SE
posted $3.5 billion in profits.
The oil and gas industry
has recovered from unprecedented
losses in 2020 as economies
have reopened this year,
sending prices to their highest
levels in two years. U.S. oil
prices have mostly stayed
above $60 per barrel since
March, after briefly turning
negative in April and remain- eming
below $50 for most of
2020. West Texas Intermediate
closed at $73.81 on Friday,
up 19 cents or 0.3%.
Still, none of the major
Western producers said they
would increase capital spending,
as the companies face
pressure from investors to
moderate growth and clean up
their emissions amid concerns
about increasing regulations
and climate change. Some European
companies have promised
to let production decline
as they invest more in renewable
energy.
Exxon cut its annual capital
budget last year to $19 billion
or less from $25 billion. It said
Friday its capital expenditures
this year will be closer to $16
billion and that its oil and gas
production was down 2% from
the same period last year.
“We think we have a good
plan on our investments, we’re
making good progress on debt,”
Exxon Chief Executive Darren
Woods said on a call with analysts.
“We are focused on
bringing in more profitable,
higher-value barrels.”
Chevron said Friday that it,
too, wouldn’t raise capital
spending. It had $5.3 billion of
capital expenditures in the first
six months of 2021, compared
with $7.7 billion in the first six
months of last year. Chevron
previously said it would increase
annual production at
about 3% or less through 2025
and give priority to returning
money to shareholders.
Both companies benefited
from strong profits in their
chemical businesses as demand
for plastics and other
products surged this year.
The restrained spending is
an overture to investors who
fled the sector after a decade
of poor returns and longerterm
concerns about the future
for fossil fuels.
“Wall Street is not looking
for accelerated reinvestment
into the oil and gas business,”
said Dan Pickering, chief investment
officer at Pickering
Energy Partners. “This is a
ContinuedfromPageOne
combo of ESG and energy
transition concerns and scar
tissue from the past decade.”
Shares in many oil and gas
companies have sharply rebounded
this year but remain
below pre-Covid-19 prices.
Chevron’s stock is up more
than 20% this year, but down
about 4% from February of
last year, while Exxon is up
nearly 40%, but is down about
5% from pre-pandemic prices.
Chevron Chief Financial Officer
Pierre Breber said many
investors still question oil producers’
commitment to capital
discipline, especially with rising
commodity prices. “Demand
for our products has
fully recovered, except for jet
[fuel],” Mr. Breber said. “Demand
for our stock is more
slowly recovering.”
To lure them back, Chevron
has given priority to shareholder
payouts. On Friday, it
said it would resume share
buybacks, which it paused in
March 2020, at a rate of $2
billion to $3 billion a year.
Chevron increased its dividend
by 4% in April. Shell and Total
reinstated buybacks this week.
Chevron on Thursday also
announced a new business
unit dedicated to technologies
to lower carbon emissions.
The move followed an announcement
in February by
Exxon that it would invest $3
billion through 2025 in a new,
low-carbon business division.
Increasing investor payouts
could be more difficult for
Exxon, whose balance sheet
holds more debt than Chevron’s.
The Irving, Texas-based
company has nearly $60 billion
in debt, according to S&P
Global Market Intelligence,
compared with Chevron’s
roughly $38 billion in debt.
Exxon held its dividend flat
earlier this year.
Exxon will need to increase
capital spending in its core assets,
particularly in Guyana and
the Permian Basin in West
Texas and New Mexico, to generate
the cash it needs to pay
down debt and reward investors,
said Biraj Borkhataria, an
analyst at RBC Capital Markets.
Exxon, the largest Western
oil company, lost three seats on
its board of directors at its annual
meeting in May to hedge
fund Engine No. 1, which had
argued Exxon spent recklessly
on unprofitable projects and
had no strategy to navigate the
energy transition.
“Capex increases on the
core business are a challenging
narrative,” Mr. Borkhataria
said. “But Exxon’s $15 billion
dividend is not going to be
funded by low-carbon assets
anytime soon, so the capital
will need to be allocated to the
core business for the foreseeable
future.”
So far, Exxon has held to its
spending cuts. In the Permian,
it has reduced the number of
rigs it is operating since March
of last year by around 85% to
less than 10, according to Andrew
McConn, an analyst at Enverus,
an energy data analytics
firm. Chevron has made similar
reductions, he said