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Exxon, Chevron surprise Wall Street as higher output lifts Q3 results
EXXON Mobil Corp and Chevron Corp delivered their strongest third-quarter results in four years, capping a week in which Big Oil enjoyed profits not seen since the days of US$100 crude.
Exxon shares climbed on Friday as the American supermajor appeared to emerge from years of production setbacks with wells in the US Permian Basin that began to neutralise failed bets on Russia and Canada. Chevron jumped the most in three years, propelled by Permian expansion that has become a priority for both companies after decades of neglect while they drilled elsewhere.
Exxon's oil and natural gas output surpassed expectations for the first time in 10 quarters, rebounding from a decade-low reached in the second quarter. Earnings climbed 57 per cent. At rival Chevron, record production combined with higher crude prices to double profit to US$4 billion.
Exxon continues to prowl the Permian for acquisition opportunities, Senior vice-president Jack Williams said during a conference call with analysts and investors. Construction is underway on a million-barrel-a-day pipeline to service booming crude output in the region while the company works to increase its ability to refine light Permian oil by 67 per cent.
After many disappointing quarters, Wall Street was pleased with Exxon. "Overall excellent cash generation," Paul Sankey, an analyst at Mizuho Securities USA LLC, said in a note to clients. "We think the company is on the right course under new CEO Darren Woods, but it is a long turning circle."
Exxon and Chevron cut debt during the quarter, while cash flow from operations - a measure closely watched by investors - surged. In fact, the explorers had enough cash around to cover investments and payouts to shareholders.
The results show that American and European energy majors are in a sweet spot, benefiting from four hard years of belt tightening, shale investments and now rising oil and gas prices.
Exxon's turnaround in production will give investors confidence that management can deliver on promises. Senior vice-president Neil Chapman called the prior quarter "a low point", signalling improvement for the remainder of the year. Still, the challenge is whether the oil giant can stabilise output before mega-projects from Guyana to Mozambique begin adding significant volumes around the middle of the next decade.
"Given last quarter's disappointment we find the solid cash flow print encouraging, and consistent with the other supermajors who have already reported," Biraj Borkhataria, a London-based analyst at RBC Capital Markets, said of Exxon.
Chevron's production was boosted by an 80 per cent year-on-year gain to 338,000 barrels per day in the Permian, which now accounts for about one in every 10 barrels the company produces worldwide.
Despite the strong earnings, investors are not being rewarded with the same buybacks that Royal Dutch Shell Plc is showering on shareholders. The Anglo-Dutch major accelerated repurchases to US$2.5 billion per quarter, far outpacing Chevron's US$750 million in third-quarter buybacks. Once a regular purchaser of its own stock, Exxon provided no update on plans to buy back shares. BLOOMBERG