Exxon And Chevron Submit Blockbuster Earnings Amid Oil Worth Rally

It was alleged to be a blockbuster quarter for power names due to the continued surge in oil costs and it didn’t disappoint: earlier at the moment Chevron reported stellar Q3 earnings, beating on the highest and backside line, with EPS of $2.96 (beating expectations of $2.21), the very best since Q1 2013 on improved market circumstances, main the power big to weigh extra share buybacks whereas reining in spending after surging pure gasoline costs and oil-refining returns drove the U.S. supermajor’s free money movement to an all-time excessive. Then moments in the past, Exxon Mobil additionally posted its largest revenue in seven years with Free Money Stream beating estimates and surprisingly pledging to spend as a lot as $10 billion on share buybacks over the subsequent 12-24 months.

Wanting on the press launch, Exxon earned an adjusted $1.58 a share throughout the third quarter, simply above the $1.56 common estimate whereas adjusted web revenue reached $6.8 billion, probably the most since 2014. One yr in the past, the corporate misplaced $650 million amid crashing oil costs.

Here’s what Exxon reported for Q3:

Adjusted EPS $1.58, beating the estimate $1.56 (GAAP EPS $1.57 vs. loss/share 15.00c y/y).
Upstream earnings $3.95 billion vs. loss $383.0 million y/y, lacking the estimate $4.47 billion
Downstream earnings $1.26 billion vs. loss $231.0 million y/y, beating the estimate $830.1 million
Chemical earnings $2.14 billion vs. $661 million y/y, beating the estimate $2.11 billion
Chemical prime product gross sales 6,672 kt, +0.7% y/y
Downstream petroleum product gross sales 5,327 kbd, +6.1% y/y
Refinery throughput 4,051 mb/d, +7.8% y/y

Q3 highlights:

Evaluating Q3 to Q2 earnings, the corporate highlighted a $2.1 billion enchancment in earnings:

Manufacturing:

Manufacturing 3,665 mboe/d, -0.2% y/y, estimate 3,644
Manufacturing 8,110 mmcfe/d, -2.5% y/y, estimate 8,345

Money Stream:

Money movement from operations $12.09 billion vs. $4.39 billion y/y, beating the estimate $11.22 billion
Money movement from operations and asset gross sales $12.11 billion vs. $4.49 billion y/y

By way of money use, the corporate spent $3.1BN on PP&E, with the stability spent on debt paydowns ($3.8BN) as the corporate continued to strengthen its stability sheet, and dividends ($3.7BN , bringing the YTD complete to $11.2BN).

CapEx:

Capital expenditure $3.85 billion, -6.8% y/y, estimate $3.82 billion (vary $3.47 billion to $4.50 billion)

A visible abstract:

As proven within the following Y/Y bridge, a majority of the positive aspects from Q3 2020 got here from Upstream worth will increase, with chemical and downstream margin enhancements contributing the stability:

Commentary and context:

On Monitor to Obtain ’25 Emission-Discount Plan by Yr Finish
Sees 4x Enhance in Low-Carbon Spend
Sees Increased Upstream Volumes in 4Q
“All three of our core companies generated optimistic earnings throughout the quarter, with robust operations and price management, in addition to elevated realizations and improved demand for fuels,” stated Darren Woods, chairman and chief government officer
Woords: “Subsequent month, the board will finalize our company plan that helps funding in industry-advantaged, high-return initiatives, and a rising listing of strategic and financially accretive lower-carbon enterprise alternatives… anticipate to extend the extent of spend in lower-emission power options by 4 instances over the prior plan, including initiatives with robust returns in addition to seeding some growth funding in massive hub initiatives that require additional coverage help.”
2021 capital program anticipated to be close to low finish of $16 billion to $19 billion vary, so no quick surge in capital spending which can imply continued excessive costs as US provide fails to rebound.
In 4Q, board will formally approve company plan, with capital spending anticipated in vary of $20 billion to $25 billion yearly
Exxon expects cumulative low- carbon investments to be about $15 billion from 2022 by way of 2027
Sees increased power prices impacting Europe & Asia refined- product costs in 4Q

However maybe what was probably the most stunning facet of Exxon’s launch is the corporate’s revival inventory buybacks repurchases for the primary time since 2016. The corporate stated it plans to spend as a lot as $10 billion on repurchases beginning subsequent yr.

Following a surge in activist investor curiosity, Exxon and Chevron – the 2 largest U.S. oil and gasoline producers – are lastly prioritizing shareholders quite than capital spending, regardless of power crises in Europe and China and widespread concern about inflation and provides of fossil fuels. The essential query for executives at each firms once they seem on their respective convention calls with analysts afterward Friday can be whether or not a few of extra money goes into boosting crude and gasoline manufacturing in 2022.

Exxon is predicted to make use of the majority of its additional money movement to cowl dividends and pay down debt, which peaked on a web foundation at virtually $70 billion on the finish of 2020. All 4 of the corporate’s main rivals – Chevron, TotalEnergies SE, Royal Dutch Shell Plc and BP Plc – are utilizing this yr’s commodity rally to purchase again shares as properly. Shell and BP have been pressured to chop their dividends final yr.

A giant purpose why each Exxon and Chevron oil producing document money movement is due to deep finances cuts made throughout the pandemic-driven oil-market collapse of final yr. Chevron’s year-to-date spending was 22% decrease than the year-earlier interval. However with document pure gasoline costs in Europe and Asia, and sturdy crude costs all over the place, there are rising incentives to extend investments in fossil fuels.

Wanting forward, the corporate gave an optimistic preview of the fourth quarter, anticipating strong enchancment throughout its 3 key segments, in addition to continued company “streamlining”

And assuming $60 oil, the corporate expects earnings to hit $30BN by 2025, almost triple the 2019 degree, with cost-reductions anticipated to exceed $6BN by 2023 vs 2019.

Lastly, with US oil E&Ps beneath the microscope of the online zero foyer, the corporate pledged $15BN in decrease carbon investments from 2022 to 2027. Evidently, this cash is taken away from increasing its legacy enterprise which is why the worth of commodities will preserve rising.

Following the strong earnings, and the shock $10BN buyback announcement, the inventory worth jumped within the pre-market rising to its June highs, and is more likely to proceed its ascent increased as XOM’s common score is ‘Maintain’, and the common sellside goal worth is simply $68.52. Anticipate a burst of upgrades within the coming days.