Exxon, Chevron report rising Permian production despite analyst estimates

(Bloomberg) — Exxon Mobil Corp. and Chevron Corp. beat analysts’ profit, output and sales estimates as rising oil production from the Permian Basin helped offset weaker crude prices.

Exxon’s third-quarter adjusted earnings exceeded expectations by a nickel on Friday, while Chevron surpassed estimates by 11 cents. 

The strong results underpinned the companies’ commitments to continue rewarding investors with hefty buybacks and payouts — in contrast to European rival bp Plc, which earlier this week warned fluctuating oil prices may imperil some share repurchases. Shell Plc and TotalEnergies SE haven’t wavered on buyback pledges, although the French oil titan noted its pace of purchasing depends on “reasonable market conditions.” 

Exxon shares initially rose, then slipped 0.8% Chevron surged as much as 4.8%, the most intraday in nearly 19 months. 

Despite the 20% decline in oil prices since early April, Exxon had ample cash flow to cover third-quarter payouts, while Chevron’s fell short, forcing the supermajor to rely on borrowing.

Exxon is the best-performing oil major this year, rising more than 15% even as international crude prices declined. North America’s largest energy explorer demonstrated it has more oil and natural gas production growth — and at lower cost — than peers. 

Exxon increased dividends for the 42nd consecutive year to 99 cents a share, higher than the 97-cent Bloomberg Dividend Projection.

Exxon was able to “fully fund” dividend payouts and share repurchases with cash flow without resorting to debt, Chief Financial Officer Kathy Mikells said during an interview.

The company also has a $27 billion cash pile and a net-debt-to-capital ratio of just 5%, leaving it in a “strong position” ahead of any oil-market downturn, she said.

“We have done a lot of work to fundamentally improve the underlying earnings power of the business and that’s going to put us in really good stead,” Mikells said.

Exxon’s fast-growing oil developments in Guyana and the Permian Basin are producing crude for less than $35 a barrel at a time when a barrel fetches more than $70, and Exxon is working on several gas-export projects in Texas, Papua New Guinea and Mozambique. It’s now the biggest producer in the Permian region after its $60 billion acquisition of Pioneer Natural Resources Co. earlier this year. 

During a call with analysts, Exxon Chief Executive Officer Darren Woods said the cost savings from buying Pioneer are “considerably higher” than expected as executives work to integrate the companies.

“What we’re finding through that process is there’s a real big opportunity to bring a lot of what Pioneer is doing into our operations,” Woods said.

As for Chevron, the explorer expects to close asset sales in Canada, Congo and Alaska by the end of the year as part of a plan to raise as much as $15 billion from divestments by 2028.

The driller also is targeting as much as $3 billion in cost reductions by the end of 2026. During interviews, Wirth indicated those reductions could include job cuts but said it was “premature” to discuss specifics.  

“Don’t read the intent of continuing to become more cost efficient, which is inherent in a commodity business and something you can never step away from, as only being about jobs,” he said. “It’s about much, much more than that. And jobs are a small part of the total.” 

Chevron’s oil and natural gas output increased 7% from a year earlier, with production in the U.S. Permian Basin touching a new quarterly record. It also commenced output from Anchor, the first in a series of new Gulf of Mexico investments. The company expects full-year average production growth to be at the top end of its 4%-to-7% guidance range.

Third-quarter dividends and buybacks amounted to $7.7 billion, outpacing the period’s $5.6 billion in free cash flow.

Earlier this year, Chevron pledged to repurchase $17.5 billion of shares annually, or about 6% of its market value, making it one of the biggest buybacks in the industry. Management has indicated it’s willing to fund the payout with borrowed money if necessary because the company’s debt is currently well below its medium-term target.  

But analysts at Citigroup Inc. said explorers with the highest buybacks such as Chevron and Equinor ASA may “need to reset distributions” in response to lower oil prices. “These negative rate-of-change stories will be seen as an issue for some investors,” Citi’s Alastair Syme wrote in an Oct. 23 note. 

Wirth strongly defended the decision to increase debt to fund buybacks, saying production is rising, free cash flow is growing 10% a year over the next three years, and the company is “underlevered” by historical standard.

Chevron stock has underperformed Exxon this year amid an arbitration battle that’s stalled the $53 billion deal to buy Hess Corp. New projects in the Gulf of Mexico and Kazakhstan will deliver meaningful cash flow from next year but in the meantime Chevron is heavily reliant on the Permian Basin, where about half its position involves stakes in wells operated by other companies. 

Wirth acknowledged that the Hess arbitration has been a drag on Chevron’s stock but said he’s confident Chevron will prevail in the dispute.

The company has also been embroiled in a high-profile dispute with the state of California over refining regulations that it claims add to costs and gasoline prices. Chevron announced plans to relocate its corporate headquarters to Houston from the San Francisco Bay area earlier this year after 145 years of being based in the Golden State. 

During his call with analysts, Wirth took a parting swipe at California, implying it was a “socialist” state.

“Putting bureaucrats in charge of centrally planning key segments of the economy hasn’t worked in other socialist states,” he said. “I doubt it will be any different in California.”