Chevron Hammered for Production Miss While Exxon Gets a PassBy
Both U.S. oil giants post double-digit profit increases
Earnings mirror rivals who gained as crude prices have risen
Exxon Mobil Corp. and Chevron Corp. each posted double-digit profit increases along with disappointing production numbers in the third quarter. But that’s where the similarities end.
Investors punished Chevron with the worst intraday clobbering in 20 months after the explorer’s crude oil and natural gas output fell 2.2 percent short of analysts’ expectations. Exxon’s more modest 0.8 percent miss spurred a brief dip in the company’s stock that has since rebounded with a slight gain.
Since 2014, when oil prices crashed, explorers have engaged in mass layoffs, canceled marquee projects and pressured service companies to cut prices. That helped the two biggest U.S. producers boost profit by 50 percent or more in the third quarter. Still, investors want additional proof that the worst trials of the rout are behind them.
Cost cutting “is ongoing and there’s more on that to go,” said Warren Gibbon, who helps oversee $758 billion as a portfolio manager at Aberdeen Standard Investments in Boston.
Chevron fell 4 percent to $113.66 at 1:18 p.m. in New York trading, after earlier losing as much as 4.3 percent. Exxon rose 0.5 percent to $83.91. Meanwhile, the price of Brent crude, the global benchmark, climbed above $60 a barrel on Friday for the first time in more than two years.
In the quarter, Exxon pumped the equivalent of 3.97 million barrels a day, short of the 4-million average estimate from analysts. Chevron’s tally was 2.717 million barrels a day, underperforming its 2.777-million average estimate. Despite the misses, both companies reaffirmed ambitious growth targets in an area neither was interested in a decade earlier: shale.
Exxon touted billions of dollars in recent acquisitions in the Permian Basin of Texas and New Mexico and said it intends to expand its drilling fleet in the region by 50 percent to 30 rigs by the end of 2018. For its part, Chevron said new well designs are slashing expenses and improving profitability.
Nothing but Good
“I think the outlook is nothing but good,” Chevron CEO John Watson said during a Friday conference call with analysts.
For Exxon, the result seemed to vindicate the explorer’s strategy of keeping a hand in all facets of the petroleum industry. Chevron is showing the benefits of a sweeping austerity plan that included job cuts, project cancellations and asset sales to protect cash flow during the three-year oil rout.
“Necessity is the mother of invention and what we’re seeing here is that the industry realized it had to learn to be profitable at $50 oil, which is a big transition from just a few years ago,” Aberdeen’s Gibbon said.
Exxon’s net income rose 50 percent in the third quarter, with per-share results topping the estimates of all but two of 20 analysts in a Bloomberg survey. At Chevron, third-quarter per-share profit exceeded the 99-cent average estimate.
The biggest U.S. oil producers followed on the heels of Total SA, which earlier Friday disclosed its highest earnings from pumping oil and natural gas in more than two years. The French company “took full advantage of the favorable environment,” Chief Executive Officer Patrick Pouyanne said in a statement. Cost cutting will continue, he vowed.
At Exxon, CEO Darren Woods has benefited as the darkest days of the oil rout receded and rebounding prices replenished Exxon coffers that dwindled to a 16-year low in the weeks before his promotion to replace Rex Tillerson.
Woods has held fast to the so-called integrated model invented by company founder John D. Rockefeller and embraced by all of his predecessors whereby Exxon pumps oil and natural gas from the ground, processes them into fuels and chemicals, and operates retail filling stations.
Even as the model was abandoned by peers such as ConocoPhillips and Marathon Oil Corp., Exxon persisted with the conviction that weakness in any one segment would be more than compensated for in the other businesses.
Woods still faces significant challenges. The company’s U.S. oil and gas business lost money for an 11th consecutive quarter, even as Exxon continues a multi-billion dollar expansion in domestic shale fields such as the Permian Basin in West Texas and New Mexico. American wells posted $238 million in losses during the quarter.
So far, shareholders aren’t convinced Woods is a bullish catalyst; only one of the company’s 20 largest investors added to their Exxon holdings during the third quarter, according to data compiled by Bloomberg. Exxon shares lost 6.8 percent of their value this year and that diminution was only partly offset by dividend payouts, which limited the year-to-date negative return to 4.1 percent.
Chevron’s Watson last month announced plans to retire and hand the reins to Vice Chairman Mike Wirth, a former refining boss who purged Chevron’s portfolio of its weakest-performing assets. Wirth will become CEO on Feb. 1. The company pledged earlier this week to pay shareholders about $2 billion in dividends in December.
— With assistance by Alex Nussbaum, and Francois De Beaupuy