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Exxon And Chevron

Post Blockbuster
Earnings Amid Oil
Price Rally
Editor OilPrice.com

Sun, October 31, 2021, 12:00 AM·6

min read
It was supposed to be a blockbuster
quarter for energy names thanks to
the ongoing surge in oil prices and it
did not disappoint: earlier today
Chevron reported stellar Q3
earnings, beating on the top and
bottom line, with EPS of $2.96
(beating expectations of $2.21), the
highest since Q1 2013 on improved
market conditions, leading the
energy giant to weigh more share
buybacks while reining in spending
after surging natural gas prices and
oil-refining returns drove the U.S.
supermajor’s free cash flow to an
all-time high. Then moments ago,
Exxon Mobil also posted its biggest
profit in seven years with Free Cash
Flow beating estimates and
surprisingly pledging to spend as
much as $10 billion on share
buybacks over the next 12-24
months.

Looking at the press release, Exxon

earned an adjusted $1.58 a share
during the third
 quarter, just above the $1.56
average estimate while adjusted net
income reached $6.8 billion, the
most since 2014. One year ago,
the company lost $650 million amid
crashing oil prices.

Here is what Exxon reported for Q3:

Ÿ Adjusted EPS $1.58, beating the

estimate $1.56 (GAAP EPS $1.57
vs. loss/share 15.00c y/y).

Ÿ Upstream earnings $3.95 billion vs.

loss $383.0 million y/y, missing the
estimate $4.47 billion

Ÿ Downstream earnings $1.26 billion

vs. loss $231.0 million
 y/y, beating the estimate $830.1
million

Ÿ Chemical earnings $2.14 billion vs.

$661 million y/y, beating the
estimate
Ÿ $2.11 billion

Ÿ Chemical prime product sales 6,672

kt, +0.7% y/y

Ÿ Downstream petroleum product

sales 5,327 kbd, +6.1% y/y

Ÿ Refinery throughput 4,051 mb/d,

+7.8% y/y

Q3 highlights:

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

Production:

Ÿ Production 3,665 mboe/d, -0.2% y/y,

estimate 3,644

Ÿ Production 8,110 mmcfe/d, -2.5%

y/y, estimate 8,345

Cash Flow:
Ÿ Cash flow from operations $12.09
billion vs. $4.39 billion
y/y, beating the estimate $11.22
billion

Ÿ Cash flow from operations and

asset sales $12.11 billion vs. $4.49
billion y/y

In terms of cash use, the company

spent $3.1BN on PP&E, with the
balance spent on debt paydowns
($3.8BN) as the company continued
to strengthen its balance sheet, and
dividends ($3.7BN , bringing the
YTD total to $11.2BN).
 CapEx:

Ÿ Capital expenditure $3.85 billion,

-6.8% y/y, estimate $3.82 billion
(range $3.47 billion to $4.50 billion)

A visual summary:
 As shown in the following Y/Y
bridge, a majority of the gains from
Q3 2020 came from Upstream price
increases, with chemical and
downstream margin improvements
contributing the balance:

Commentary and context:

Ÿ On Track to Achieve '25 Emission-
Reduction Plan by Yr End

Ÿ Sees 4x Increase in Low-Carbon

Spend
Ÿ Sees Higher Upstream Volumes in
4Q

Ÿ “All three of our core businesses

generated positive earnings during
the quarter, with strong operations
and cost control, as well as
increased realizations and improved
demand for fuels,” said Darren
Woods, chairman and chief
executive officer

Ÿ Woords: "Next month, the board will

finalize our corporate plan that
supports investment in industry-
advantaged, high-return projects,
and a growing list of strategic and
financially accretive lower-carbon
business opportunities... expect to
increase the level of spend in lower-
emission energy solutions by four
times over the prior plan, adding
projects with strong returns as well
as seeding some development
investment in large hub
Ÿ projects that require further policy
support."

Ÿ 2021 capital program expected to

be near low end of $16 billion to $19
billion range, so no immediate surge
in capital spending which will mean
continued high prices as US supply
fails to rebound.

Ÿ In 4Q, board will formally approve

corporate plan, with capital
spending expected in range of
$20 billion to $25 billion annually

Ÿ Exxon expects cumulative low-

carbon investments to be about $15
billion from 2022 through 2027
Ÿ Sees higher energy costs impacting
Europe & Asia refined- product
prices in 4Q
But perhaps what was the most
surprising aspect of Exxon's release
is the company's revival stock
buybacks repurchases for the first
time since 2016. The company
said it plans to spend as much as
$10 billion on repurchases
starting next year.

Following a surge in activist investor

interest, Exxon and Chevron - the
two largest U.S. oil and gas
producers - are finally prioritizing
shareholders rather than capital
spending, despite energy crises in
Europe and China and widespread
concern about inflation and supplies
of fossil fuels. The crucial question
for executives at both companies
when they appear on their
respective conference calls with
analysts later on Friday will be
whether some of additional cash
goes into boosting crude and gas
production in 2022.
Exxon is expected to use the bulk of
its extra cash flow to cover
dividends and pay down debt, which
peaked on a net basis at almost $70
billion at the end of 2020. All four of
the company’s major rivals -
Chevron, TotalEnergies SE, Royal
Dutch Shell Plc and BP Plc - are
using this year’s commodity rally to
buy back shares as well. Shell and
BP were forced to cut their
dividends last year.

A big reason why both Exxon and

Chevron oil generating record cash
flow is because of deep budget cuts
made during the pandemic-driven
oil-market collapse of last year.
Chevron’s year-to-date spending
was 22% lower than the year-earlier
period. But with record natural gas
prices in Europe and Asia, and
robust crude prices everywhere,
there are growing incentives to
increase investments in fossil fuels.
 Looking ahead, the company gave
an optimistic preview of the fourth
quarter, expecting solid
improvement across its 3 key
segments, as well as continued
corporate "streamlining"

And assuming $60 oil, the company

expects earnings to hit $30BN by
2025, nearly triple the 2019 level,
with cost-reductions expected to
exceed $6BN by 2023 vs 2019.
Finally, with US oil E&Ps under the
microscope of the net zero lobby,
the company pledged $15BN in
lower carbon investments from
2022 to 2027. Needless to say, this
money is taken away from
expanding its legacy business
which is why the price of
commodities will keep rising.
Following the solid earnings, and
the surprise $10BN buyback
announcement, the stock price
jumped in the pre-market rising to
its June highs, and is likely to
continue its ascent higher as XOM's
average rating is 'Hold', and the
average sellside target price is just
$68.52. Expect a burst of upgrades
in the coming days.
 By Tom Kool for Oilprice.com

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