Exxon, Chevron generate most free cash flow in over a year

Rallying crude prices and demand for chemicals used in plastics more than offset losses from refining as the largest North American oil explorers reported their first-quarter results on Friday.

Despite living up to Wall Street’s profit expectations, Chevron shares dropped 2.4 percent after disappointing investors who were anticipating a revival of share buybacks [File: Daniel Acker/Bloomberg]

Exxon Mobil Corp. and Chevron Corp. generated the most free cash flow in more than a year as economies around the world claw their way out of lockdowns, boosting energy demand.

Rallying crude prices and demand for chemicals used in plastics more than offset losses from refining oil as the largest North American explorers disclosed first-quarter results on Friday.

Despite living up to Wall Street’s profit expectations, Chevron shares dropped 2.4% after disappointing investors who were anticipating a revival of share buybacks. Although Exxon’s deep refining losses were blunted by chemical profits, the stock declined by 1.7%.

All the supermajors are making money again after crude’s 30% year-to-date rally to more than $65 a barrel, buoyed by rising energy demand as economies emerge from the pandemic and OPEC holds the line on big supply increases. BP Plc, Royal Dutch Shell Plc and Total SE all preceded their U.S. peers with bigger-than-expected profits.

Exxon’s roughly $6 billion in free cash flow was more than enough to cover its mammoth dividend, the first time the oil giant has been able to do that since late 2018. Chevron posted $3.4 billion in first-quarter cash flow, enough to fund its recently increased dividend, which is a closely watched metric for the oil supermajors.

For both companies, a key driver of the cash-flow increases was steep spending cuts as less-risky endeavors such as shale drilling were favored over costlier mega-projects. Exxon cut capital expenditures by more than half while Chevron’s was down 43% from a year ago. Neither have plans to boost spending in light of higher oil prices, a sign that discipline is holding for now.

Exxon earned 64 cents a share in the first quarter, beating the 61-cent average estimate from analysts in a Bloomberg survey. The oil giant’s exploration and drilling division drove most of the gains but it also received a substantial tailwind from higher chemicals prices that helped offset losses incurred during the deadly February storm in Texas.

Exxon’s turnaround from last year’s unprecedented string of losses will help restore investor faith in its ability to maintain and even grow the S&P’s third-largest dividend, the cornerstone of Chief Executive Officer Darren Woods’ pitch to Wall Street. Unlike European rivals Shell and BP, Exxon didn’t cut payouts last year, but the decision came at a cost: borrowings increased 44% to almost $68 billion. Exxon reduced debt by around $4 billion this quarter.

Chevron posted adjusted per-share profit of 90 cents, according to a statement, matching the average of analysts’ forecasts. Results across the sector signal the worst may be over from the dual menace of a worldwide glut and demand-killing Covid-19 lockdowns.

Amid the brightening outlook, significant challenges remain. Chevron’s U.S. refining network lost money for the third time in four quarters, while its overseas fuel-making plants slashed crude-processing by 16% to cope with anemic demand for transportation fuels.

Both companies cited the negative impacts of the deadly winter storm that afflicted Texas in mid-February.

Chevron wants to begin buying back shares but declined to provide a time line, reiterating the position announced in March.

“As we look forward, we expect to begin the repurchase of shares when we’re confident that we can sustain a buyback program for multiple years through the oil price cycle,” Chief Financial Officer Pierre Breber said in remarks prepared for a conference call with analysts later this morning.

Source: Bloomberg

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