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ExxonMobil and Chevron reported double-digit falls in first-quarter profits on Friday in a sign that two years of bumper earnings driven by Russia’s full-scale invasion of Ukraine in 2022 may be coming to an end.
The two US oil majors have cashed in on soaring energy prices linked to the war in Ukraine by returning tens of billions of dollars to shareholders and announcing large acquisitions designed to propel their future growth. But sharp falls in natural gas prices and reduced oil refinery margins dented their earnings in the first three months of the year, causing both companies’ shares to dip in early trading.
“Crude, cracks, global gas are down from record levels a couple years ago, so fair to assume record earnings may not continue,” said Jason Gabelman, analyst at TD Cowen, an investment bank.
Exxon reported first-quarter net profit of $8.2bn, which was down 28 per cent from $11.4bn on the same period last year because of lower gas prices and refining margins. It posted earnings per share of $2.06, which were below consensus expectations of $2.19, according to FactSet.
Chevron reported net income of $5.5bn in the first quarter, down 16 per cent from the same period last year. Adjusted earnings of $2.93 per share were above analysts’ expectations of $2.90.
Kathryn Mikells, ExxonMobil’s chief financial officer, blamed non-cash items mainly linked to tax, inventory and balance sheet adjustments and divestments for its earnings miss. She said the company was performing well, noting cash flow from operating activities of $14.7bn was about $1bn above consensus.
Mikells said Exxon’s offshore operations in Guyana — the South American country that is key to its growth plans — produced a record 600,000 barrels of oil equivalent per day.
Exxon is embroiled in an arbitration dispute with its US rival Chevron, which is attempting to gain a foothold in the fast-growing Guyana operation by acquiring one of Exxon’s partners, Hess, for $53bn.
Chevron’s proposed deal would hand it control of 30 per cent of the Stabroek Block, one of the largest offshore oil discoveries in decades. Exxon owns 45 per cent of the oil block off Guyana’s coast.
Mikells reiterated Exxon’s belief that it had a pre-emption right to Hess’s Guyana asset. “It’s about confirming our rights . . . and establishing the value associated with the transaction for Guyana,” she said.
Chevron chief executive Mike Wirth told investors the company remained confident that a pre-emption right does not apply to the transaction and this would be affirmed in arbitration.
Exxon shares have performed strongly this year, rising 18 per cent to hit a record high earlier this week on the back of rising oil prices linked to unrest in the Middle East. Chevron shares have increased 10 per cent this year to $164.65.
After Friday’s results, Exxon’s shares fell 2.5 per cent while Chevron was off 0.2 per cent.
Exxon and Chevron reported record net income of $55.7bn and 35.5bn, respectively, in 2022. Last year both companies notched their second-highest annual profits in a decade, with respective net income of $36bn for Exxon and $21.4bn at Chevron.
Investors said the two biggest US oil companies would continue to generate significant cash flow despite the dip in first-quarter earnings, citing surging demand for energy in the US and elsewhere.
“Earnings results for the oil majors were weaker on a combination of lower gas prices and downstream turnarounds. However, we see real structural demand tailwinds that are set to benefit these companies,” Michael Alfaro, chief investment officer at Gallo Partners, a hedge fund focused on regulatory and policy matters in energy and industrials.
Alfaro said he expected Exxon’s stock buyback programme to accelerate following its $60bn acquisition of US shale oil producer Pioneer Natural Resources, which the company expects will close by the end of June.
Mikells said Exxon was watching the “pretty troubling” geopolitical events in the Middle East and Russia closely but stressed its operations had not been subject to major disruptions.
She said: “The recent geopolitical events are pretty troubling. It’s a situation that we watch very closely. Obviously, geopolitical events can have an impact on the business.”
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