US oil giants to keep a lid on spending even as profits surge

NEW YORK (AFP) – US oil giants ExxonMobil and Chevron reported strong profits on Friday riding a wave of higher prices amid recovering demand, but pledged to keep a lid on spending.

The results marked a 180-degree reversal from this time last year when the companies suffered hefty losses amid heavy pandemic restrictions that crimped economic activity and halted travel.

“Positive momentum continued during the second quarter across all of our businesses as the global economic recovery increased demand for our product,” said Exxon Chief Executive Darren Woods.

But neither company indicated plans to pivot away from the focus on spending discipline or open the spigots on more investment in additional projects, reflecting pressure from investors, including those who oppose more spending on fossil fuels.

ExxonMobil said it would keep its 2021 capital spending budget at the low end of projections, while Chevron highlighted its lower spending in the second quarter.

Chevron also announced plans to resume share repurchases in the third quarter.

ExxonMobil reported profits of USD4.7 billion in the second quarter, compared with a loss of USD1.1 billion in the same three months of last year when pandemic restrictions devastated energy demand. Revenues more than doubled to USD67.7 billion.

An Exxon service station sign in Philadelphia. PHOTO: AP

ExxonMobil scored higher profits across its exploration and production business, with significantly higher oil prices more than offsetting lower production. Chemical profits also surged during the quarter on strong demand and pricing.

But the company pointed to “ongoing impacts from market oversupply” as a drag on its downstream business, which lost money during the quarter.

ExxonMobil said it expects higher planned spending in the second half of the year on key projects, but full-year spending will be on the “lower end” of its projected USD16 billion to USD19 billion for all of 2021.

Chevron, meanwhile, brought in earnings of USD3.1 billion, compared with a loss of USD8.3 billion a year earlier, as revenues more than doubled to USD37.6 billion.

“Second quarter earnings were strong, reflecting improved market conditions, combined with transformation benefits and merger synergies,” said Chevron Chief Executive Mike Wirth.

“Our free cash flow was the highest in two years due to solid operational and financial performance and lower capital spending,” Wirth added.

“We will resume share repurchases in the third quarter at an expected rate of USD2-3 billion per year.”

CFRA Research analyst Stewart Glickman said both oil giants had a “great” quarter, adding that “everything that had been a headwind turned around and became a tailwind”.

Investors do not want the oil giants to boost capital spending, he said.

“The investor base is telling Exxon to keep the cap ex low, improve the capital efficiency,” Glickman said. “The growth mantra (oil and gas production) has totally lost resonance.” That includes investors focussed on environmental, social and governance issues or ESG.