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Exxon Chevron teaches prudence even as cash falls back

(Bloomberg) – Exxon Mobil Corp. and Chevron Corp. boost the recovery momentum for the U.S. oil industry as they report impacted cash flow, a huge improvement after the scorching 2020.

The energy giants generated enough cash to pay dividends, debt payments and project spending in the first quarter, the first time they have been able to do so in more than a year.

The results are critical for Exxon as it signals a recovery from one of the toughest times in at least four decades. The gains give Chief Executive Darren Woods some breathing space as he tries to persuade shareholders who suspect his fossil fuel strategy could lead to an energy transition.

Chevron forecast strong cash flow earlier this week when dividends were higher than pre-epidemic levels, beating all rivals. But investors signaled Friday they will not be satisfied until explorers reclaim the buyback, with what Chief Financial Officer Pierre Breber dislikes to predict.

What is noteworthy is the absence of a perennial oil price rally: there are plans to increase crude oil production. But the largest US digger has been sticking to austerity measures taken during the darkest day of last year̵

7;s market crisis, easing fears that surging cash flows could spark more. The cycle of growth was born again.

“It’s really a 180-degree reversal from last year,” said Neelingmann, an analyst at Truist Securities. “What remains echoed by the two companies is their investment discipline.”

Exxon’s free cash flow, a key metric that Big Oil analysts have been watching, peaked since 2018, prompting Texas oil titan not only to fund the S&P 500’s third-largest dividend, but also Also invested in major projects in Guyana and the Permian Basin.

The surveyors also reduced their debt by 6% in just three months. It was a stark contrast to two years ago, when Exxon’s cash generation lacked payments and expenses, leading to massive borrowing.

Supermarkets are making money again after crude oil skyrocketed 30 percent year over year to more than $ 65 a barrel, driven by rising energy demand as the economy was driven by the epidemic and OPEC continued to have a huge increase in supply. The difference this time around is that they cut costs considerably: Exxon’s capital spending was 56% lower than the previous year, while Chevron was down 43%.

But shareholders shouldn’t expect cash, Exxon CEO Darren Woods stressed that any windfall will lead to debt repayment, which rose 44 percent last year.

“If profit margins and prices are higher than planned, we can take advantage of it more quickly and rebuild the balance sheet,” he said during a conference call with analysts.

Read: Big Oil revives cash flow and profit levels before the outbreak.

Chevron’s Breber has been repeatedly pressured by analysts on when the California-based company will start repurchasing its shares. He refused to give a time frame.

“People need formulas or triggers, and some of our competitors have numbers,” he said.

Expectations are high after the Plc. BP, Royal Dutch Shell Plc and Total SE were ahead of their US counterparts with far more than expected profits, so Exxon and Chevron traded down 2.2% and 3.3% respectively. The country was down 1.9% today.

What Bloomberg Intelligence Says

Chevron is continuing its balance sheet restoration work and may be in a position to initiate share buybacks within 2H if oil prices remain close to current levels.

– Fernando Valle, BI analyst

Read the full report here.

Exxon’s reversal of last year’s failure could not be done in time. CEO Woods enters the awkward annual meeting within weeks, with shareholders considering the proposed Engine No. 1 activist shareholder to the boardroom.

Woods said first-quarter results represent an ambitious spending decision and has often been criticized for doing so in the past few years.

“We have never overlooked the long-term fundamentals of our business,” Woods says. “We know that the economy will recover, population and living standards will continue to grow, resulting in demand for our products and a recovery in the economy. Industry in the end “

Exxon earned 64 cents per share in the first quarter, 61 percent above the average estimate from analysts in the Bloomberg survey, the oil giant’s manufacturing division has driven most of its profits. But it has also been largely hit by rising chemical prices, which prompted the department to maximize profit since at least 2014.

Jet fuel

Demand for plastic and consumer packaging should remain strong for the rest of the year as the economic recovery continues, especially in the United States, Woods said.

Chevron’s results match the average of analyst expectations. But the distillation saw a 99% drop in profit due to lower fuel demand. The company’s large refineries on the west coast have been particularly hit by a decline in jet fuel consumption as it is close to the international airport, Breber said.

As a result, prudence is so important to Big Oil.With the trauma of the 2020 and 2014-2016 downturns still fresh, Super Major isn’t getting the newfound money.

“We don’t see the virtue of investing in short-term production in a world that is going to oversupply over time,” Breber said.

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