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Exxon, Chevron Beat Profit Estimates on War-Driven Oil Rally
By Kevin Crowley (Bloomberg) —
Corp. posted stronger-than-expected earnings for the first quarter as higher oil and natural gas prices outweighed production outages from the Iran war.
Surging energy prices boosted Exxon’s first-quarter earnings by $1.7 billion, more than offsetting a $400 million blow from war-related production outages, the company said Friday. Roughly 15% of Exxon’s worldwide output remains offline, Chief Financial Officer Neil Hansen said in an interview.
Although Chevron is less exposed to Middle East disruptions, production dipped roughly 5% on a sequential basis. Even so, its per-share profit surpassed every estimate from analysts.
While the companies’ results surpassed expectations, both Exxon and Chevron had warned Wall Street last month about some of the negative impact on production and derivatives positions arising from the conflict in the Middle East, and analysts had lowered their estimates for the quarter accordingly.
Exxon and Chevron said that with the Strait of Hormuz remaining all but blocked, the outlook for the rest of the year is uncertain.
“The global energy system continues to be under extreme stress,” he said,” Chevron Chief Executive Officer Mike Wirth said in an interview on CNBC.
Exxon’s shares dropped 0.8% as on 10:29 a.m. in New York trading and Chevron fell 1%. While international oil prices have advanced more than 50% since the conflict erupted in late February, crude futures were lower Friday.
Exxon’s profit excluding one-time items in the first quarter was $4.9 billion, or $1.16 a share. That was 20 cents higher than the average analyst per-share estimate in a Bloomberg survey.
While earnings dropped to a five-year low, the figure included the impact of temporary accounting charges tied to derivative contracts that the company expects to fully unwind over the coming months.
The largest North American oil driller guided average daily output equivalent to 4.9 million barrels this year. But Exxon may revise that view as the Iran war chokes Middle East energy flows and prevents the company from selling crude and liquefied natural gas from the region, Hansen said.
“Part of the challenge with giving guidance is, as you would imagine, we really don’t know how long the Strait of Hormuz will remain closed,” he added.
As for Chevron, adjusted per-share profit reached $1.41, or 51 cents higher than expected. The company benefited from surging prices for crude and gas, as well as growth from Chevron’s new stake in a giant Guyanese field.
Chevron already had warned that significant accounting losses on derivatives tied to cargoes that had yet to reach their destinations. Notoriously difficult to model, that guidance prompted some analysts to slash estimates, a factor that may have played into the magnitude of Friday’s beat.
Chevron’s outsized earnings owed much to swelling prices for real-world oil from places such as Kazakhstan, as well as fat margins from processing the company’s own crude through refineries, Chief Financial Officer Eimear Bonner said in an interview.
“Bottom line, execution exceeded expectations,” she said.
BP Plc and TotalEnergies SE also exceeded forecasts when they reported earlier this week, boosted by strong trading results.
Exxon’s bought back $4.9 billion of shares during the quarter and affirmed its intention to repurchase $20 billion worth of stock this year.
Chevron, meanwhile, bought back $2.5 billion of stock, 16% less than the previous period and at an annual rate at the bottom of its annual $10 billion-to-$20 billion guidance range. Some analysts had speculated the company might increase repurchases.
“We think some investors may be disappointed with the lack of increase to the buyback today, however this is a ‘when, not if’ situation, and maybe it should not be such a surprise given CVX’s cautious nature typically,” RBC Capital Markets analysts including Biraj Borkhataria wrote in a note to clients.
Chevron is loathe to boost its buyback range based on the recent jump in energy prices and would need to see a more sustained rally to change course, Bonner said.
“What we’d need to see is something more durable in the fundamental outlook, more of a structural price update for us to be making any adjustments,” the CFO said. “For now, we’re happy with where we are.”
Chevron’s $60 billion acquisition of Hess, combined with growing production from the US Gulf of Mexico and the Permian Basin, ensured that Chevron’s production was higher than a year ago, more than offsetting outages in Israel, the partitioned zone between Saudi Arabia and Kuwait, and Kazakhstan.
But the company was not immune from the impacts of the war. Its international refining division lost $1 billion due to “lower margins on refined product sales,” unfavorable accounting effects and higher transportation costs.
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