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Exxon and Chevron preach caution even as Cash Waterfall returns

(Bloomberg) – Exxon Mobil Corp. and Chevron Corp. gave new impetus to a nascent recovery in the US oil industry by reporting exceptional cash flow, a dramatic improvement after a scorching 2020.The energy giants generated enough cash to cover dividends and debt . payments and project expenses in the first quarter, the first time they’ve been successful in more than a year, the results are particularly significant for Exxon as they signal a turnaround from its most difficult time in at least four decades. The gains give CEO Darren Woods wiggle room as he seeks to persuade skeptical shareholders that his fossil fuel-based strategy can profitably navigate the energy transition. , beating all its rivals. But investors signaled on Friday that they would not be satisfied until the explorer also reinstated share buybacks, which CFO Pierre Breber did not like to predict. production. Instead, America’s biggest drillers have held firm to the austerity measures adopted during the darkest days of last year’s market slump, allaying fears that one surging cash flow would trigger another. disastrous growth cycle of production. Said Neal Dingmann, analyst at Truist Securities. “What still resonates with these two companies is the discipline of capital.” Exxon’s free cash flow, a key metric watched by Big Oil analysts, reached its highest since 2018, allowing the Texas oil titan to not only fund the third largest of the S&P 500 dividend but also invest. in key projects in Guyana and in the Permian basin. The Explorer also reduced its debt by 6% in just three months. This was a stark contrast to the previous two years when Exxon’s cash generation fell short of payments and expenses, forcing him to borrow heavily. All supermajors are making money again after the rally. from 30% of year-to-date crude to over $ 65 a barrel, supported by rising energy demand as economies emerge from pandemic and OPEC holds the line on sharp increases of the offer. The difference this time around is that they all cut costs significantly: Exxon’s capital spending was down 56% from the previous year, while Chevron’s was 43% lower, but shareholders shouldn’t expect to be inundated with cash just yet. Exxon CEO Darren Woods stressed that any windfall will go to paying off debt, which rose 44% last year. “If margins and prices remain higher than expected, we will deleverage faster, rebuilding the balance sheet,” he said on a conference call. READ: Big Oil Boosts Pre-Pandemic Cash Flow and Profit Levels Chevron’s Breber has been repeatedly pressed by analysts on when the California-based company will start share buybacks. He refused to give a deadline. “People want a formula or a trigger and some of our competitors have those numbers,” he said. “We’re going to use judgment and we’re going to look at what we see in front of us.” Expectations were high after BP Plc, Royal Dutch Shell Plc and Total SE all preceded their US peers with larger-than-expected earnings. Thus, Exxon and Chevron fell by 2.2% and 3.3% respectively at 2:07 p.m. in New York. International crude prices fell 1.9% on the day. What Bloomberg Intelligence says: Chevron continues to make progress in restoring its balance sheet and may be able to restart share buybacks within 2 hours, if oil prices stay close to current levels – Fernando Valle, BI analyst Read the full report here. the fiasco of the year could not have been more timely. Woods said the first quarter results were a manifestation of ambitious and oft-criticized spending decisions he made in the past. “We have never lost sight of the long-term fundamentals of our business,” said Woods. “We knew that economies would recover, that populations and standards of living would continue to grow, which would ultimately lead to demand for our products and a recovery in the industry.” Exxon gained 64 cents a share in the first quarter, beating analysts’ average estimate of 61 cents in a Bloomberg survey. The oil giant’s production division generated most of the gains, but it also received a substantial tailwind from rising chemicals prices, which propelled this division to its highest profit since at least 2014. While the economic recovery continues, especially in the United States, Woods said. Chevron’s profits were on par with analysts’ forecasts, but refining suffered a 99% drop in profits due to below-par fuel demand. The company’s large refineries on the west coast have been hit particularly hard by the decline in jet fuel consumption due to their proximity to international airports, Breber said, so caution is now Big Oil’s mantra. With the trauma of the calamitous calamities of 2020 and 2014-2016 still fresh, the supermajors are not taking their new cash for granted. “We didn’t see the virtue of investing capital to add short-term production in a world that was going to be surplus for a while,” said Breber. For more articles like this, please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP



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