Released November 05, 2021 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Large integrated oil companies reported mostly solid financial results for the third quarter, and they plan to share more of that largesse with their investors. Beyond increased dividends, Big Oil plans to use its cash haul to reduce debt and invest, in a disciplined way, in the core business, with some investments going to adjacent lower-carbon ventures. They are not, generally speaking, using their surge of cash to chase the next "elephant" oilfield discovery.
All in all, the recent earnings announcements from Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), BP plc (NYSE:BP) (London, England), Chevron Corporation (NYSE:CVX) (San Ramon, California) and Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, The Netherlands) point to an industry trying to recover the confidence of investors. For much of the last decade, investors have tended to be sellers rather than buyers, as oil companies spent billions buying and developing acreage in unconventional formations--while generating one of the lowest rates of return of any industry.
Third-quarter earnings were helped by higher prices for crude oil and natural gas; stronger demand as COVID-19 travel restrictions were lifted; better margins; leaner organizations; and the sale of peripheral assets amid a drumbeat from investors to move to lower-carbon businesses.
Though each company posted different price realizations for the oil and gas it sells, West Texas Intermediate (WTI) crude oil rose slightly during the July-September quarter, to about $75 per barrel on September 30, a gain of about $1.50 per barrel during the quarter. Natural gas prices surged about 60% during the quarter, from $3.66 per million British thermal units (MMBtus) at Henry Hub, Louisiana, to roughly $5.87 per MMBtus.
Here's a round-up of third-quarter earnings from four integrated oil supermajors:
ExxonMobil
ExxonMobil was roiled earlier this year after shareholders voted against management's recommendation and seated three board members who want the oil giant to more rapidly decarbonize. The public may learn more about the oil giant's investment plans later this year, when the company is scheduled to release its long-term capital plans.
For now, though, ExxonMobil did quite nicely in the third quarter, posting net earnings of $6.75 billion, a $7.4 billion shift from the comparable year-earlier quarter, when the company posted a net loss of $680 million. Quarterly revenue soared 60% to $73.8 billion, from $46.2 billion in the comparable year-earlier quarter, when the world was struggling through an economic lockdown caused by the COVID-19 pandemic.
Cash flow from operations totaled $12.1 billion in the just-completed quarter, which fully funded capital expenditures (capex), debt reduction and the dividend, the company said October 29. Exxon said it anticipates annual capex in the $20 billion to $25 billion range, which includes a quadrupling of investment in low-carbon businesses. The company increased the dividend and announced a share repurchasing program of up to $10 billion over the next 12-24 months, starting in January 2022.
The company also said it was on track to achieve its 2025 emission-reduction plans by the end of 2021.
"All three of our core businesses generated positive earnings during the quarter, with strong operations and cost control, as well as increased realizations and improved demand for fuels," said Darren Woods, ExxonMobil's chairman and chief executive officer, October 29 in an earnings-related press release.
"Next month, the board will finalize our corporate plan that supports investment in industry-advantaged, high-return projects, and a growing list of strategic and financially accretive lower-carbon business opportunities," Woods said. "The strong returns generated by our core businesses provide the near-term cash flows to fund lower-carbon opportunities that leverage our competitive strengths in technology, engineering and project development."
Chevron
The supermajor reported a sharp positive swing in the third quarter, posting net income of $6.1 billion, a reversal of the $207 million loss it reported in the comparable year-earlier quarter. Quarterly revenue nearly doubled, rising to $43 billion from $24 billion in the third quarter of 2020.
"Third-quarter earnings were the highest since first-quarter 2013, largely due to improved market conditions, strong operational performance and a lower cost structure," said Mike Wirth, Chevron's chairman and chief executive officer, in the October 29 earnings release.
"Our free cash flow during the quarter was the best ever reported by the company," Wirth said. Indicating that he was heeding Wall Street's call to return capital to shareholders, Wirth said, "we paid dividends of $2.6 billion, reduced debt by $5.6 billion, and repurchased $625 million of shares during the quarter."
This quarter's results were heightened by $200 million in asset sales and a $305 million gain tied to favorable foreign exchange rates.
The company said it "continued to exercise capital discipline and actively manage its portfolio to advance its higher-return, lower-carbon objectives." Year-to-date capex was down 22% from comparable 2020 levels.
Royal Dutch Shell
Quarterly results at this European-based supermajor were hammered by a $5.2 billion commodity derivatives charge, a $300 million after-tax asset impairment charge and a $400 million charge tied to Hurricane Ida. Those charges were partly offset by $300 million of net gains from the sale of assets.
Overall, Shell reported a quarterly net loss of $447 million for the quarter, a reversal of earnings of $489 million in the comparable year-earlier period.
In announcing results on October 28, Chief Executive Officer Ben van Beurden said: "This quarter we've generated record cash flow, maintained capital discipline and announced our intention to distribute $7 billion to our shareholders from the sale of our Permian assets. Today, we also set a new 2030 target to halve the absolute emissions from our operations, compared to 2016 levels on a net basis. Altogether, this is clear evidence of how we are accelerating our 'Powering Progress' strategy, purposefully and profitably."
The sale of its Permian Basin assets was part of Shell's long-term strategy of increasing the share of natural gas in its portfolio.
Speaking directly to investors, the Shell CEO emphasized its "disciplined" cash capex of about $13.2 billion through the first nine months of 2021, and a plan to come in at about $20 billion for the year.
Shell executed share buybacks of about $1 billion during the just-completed quarter, and highlighted its plan to distribute $7 billion in Permian Basin asset sale proceeds to shareholders in 2022.
The company is under a Dutch court's order, which Shell is appealing, to cut its global carbon dioxide (CO2) emissions 45% by 2030. In its earnings release, Shell said it was on track to achieve "an absolute emissions reduction target of 50% by 2030, compared to 2016 levels on a net basis, covering all Scope 1 and 2 emissions under Shell's operational control."
This past May, the Dutch court ordered Shell to cut so-called Scope 1, Scope 2 and Scope 3 emissions 45% by 2030. Scope 3 emissions are emissions released when customers consume Shell's products. Scope 1 and 2 emissions pertain to emissions by Shell and members of its supply chain. Scope 3 emissions account for the vast majority, reportedly up to 90%, of Shell's overall greenhouse gas emissions.
BP
Like Shell, quarterly results for BP were hurt badly by a $6.1 billion pre-tax, mark-to-market charge relating to the run up of gas prices toward the end of the quarter. This charge is expected to be reversed when prices decline and contracted volumes of liquified natural gas (LNG) are delivered.
The charges turned a $3.3 billion quarterly operating profit into a net loss of $2.5 billion.
But in reporting results November 2, the company highlighted "strong underlying results and cash flows," higher prices for oil and gas, continued net debt reduction, and about $300 million in asset sale proceeds received.
Looking past the accounting charge, Chief Executive Bernard Looney highlighted operating results: "This has been another good quarter for BP: Our businesses are generating strong underlying earnings and cash flow while maintaining their focus on safe and reliable operations. Rising commodity prices certainly helped, but I am most pleased that quarter by quarter, we're doing what we said we would--delivering significant cash to strengthen our finances, grow distributions to shareholders and invest in our strategic transformation. This is what we mean by performing while transforming."
Earlier this year, BP laid out a 10-year plan to reduce oil and gas production by 40% and boost spending on low-carbon energy to $5 billion per year. In an interview last week on CNBC, Looney said, "I understand ... there is a view amongst some in society that companies like ours are not part of the (climate change) solution." But he pointed to the company's investments in electrified transportation: "If you look at the substance in just one sector in one quarter, I think it's hard to argue that we are not part of the solution here."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
All in all, the recent earnings announcements from Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas), BP plc (NYSE:BP) (London, England), Chevron Corporation (NYSE:CVX) (San Ramon, California) and Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, The Netherlands) point to an industry trying to recover the confidence of investors. For much of the last decade, investors have tended to be sellers rather than buyers, as oil companies spent billions buying and developing acreage in unconventional formations--while generating one of the lowest rates of return of any industry.
Third-quarter earnings were helped by higher prices for crude oil and natural gas; stronger demand as COVID-19 travel restrictions were lifted; better margins; leaner organizations; and the sale of peripheral assets amid a drumbeat from investors to move to lower-carbon businesses.
Though each company posted different price realizations for the oil and gas it sells, West Texas Intermediate (WTI) crude oil rose slightly during the July-September quarter, to about $75 per barrel on September 30, a gain of about $1.50 per barrel during the quarter. Natural gas prices surged about 60% during the quarter, from $3.66 per million British thermal units (MMBtus) at Henry Hub, Louisiana, to roughly $5.87 per MMBtus.
Here's a round-up of third-quarter earnings from four integrated oil supermajors:
ExxonMobil
ExxonMobil was roiled earlier this year after shareholders voted against management's recommendation and seated three board members who want the oil giant to more rapidly decarbonize. The public may learn more about the oil giant's investment plans later this year, when the company is scheduled to release its long-term capital plans.
For now, though, ExxonMobil did quite nicely in the third quarter, posting net earnings of $6.75 billion, a $7.4 billion shift from the comparable year-earlier quarter, when the company posted a net loss of $680 million. Quarterly revenue soared 60% to $73.8 billion, from $46.2 billion in the comparable year-earlier quarter, when the world was struggling through an economic lockdown caused by the COVID-19 pandemic.
Cash flow from operations totaled $12.1 billion in the just-completed quarter, which fully funded capital expenditures (capex), debt reduction and the dividend, the company said October 29. Exxon said it anticipates annual capex in the $20 billion to $25 billion range, which includes a quadrupling of investment in low-carbon businesses. The company increased the dividend and announced a share repurchasing program of up to $10 billion over the next 12-24 months, starting in January 2022.
The company also said it was on track to achieve its 2025 emission-reduction plans by the end of 2021.
"All three of our core businesses generated positive earnings during the quarter, with strong operations and cost control, as well as increased realizations and improved demand for fuels," said Darren Woods, ExxonMobil's chairman and chief executive officer, October 29 in an earnings-related press release.
"Next month, the board will finalize our corporate plan that supports investment in industry-advantaged, high-return projects, and a growing list of strategic and financially accretive lower-carbon business opportunities," Woods said. "The strong returns generated by our core businesses provide the near-term cash flows to fund lower-carbon opportunities that leverage our competitive strengths in technology, engineering and project development."
Chevron
The supermajor reported a sharp positive swing in the third quarter, posting net income of $6.1 billion, a reversal of the $207 million loss it reported in the comparable year-earlier quarter. Quarterly revenue nearly doubled, rising to $43 billion from $24 billion in the third quarter of 2020.
"Third-quarter earnings were the highest since first-quarter 2013, largely due to improved market conditions, strong operational performance and a lower cost structure," said Mike Wirth, Chevron's chairman and chief executive officer, in the October 29 earnings release.
"Our free cash flow during the quarter was the best ever reported by the company," Wirth said. Indicating that he was heeding Wall Street's call to return capital to shareholders, Wirth said, "we paid dividends of $2.6 billion, reduced debt by $5.6 billion, and repurchased $625 million of shares during the quarter."
This quarter's results were heightened by $200 million in asset sales and a $305 million gain tied to favorable foreign exchange rates.
The company said it "continued to exercise capital discipline and actively manage its portfolio to advance its higher-return, lower-carbon objectives." Year-to-date capex was down 22% from comparable 2020 levels.
Royal Dutch Shell
Quarterly results at this European-based supermajor were hammered by a $5.2 billion commodity derivatives charge, a $300 million after-tax asset impairment charge and a $400 million charge tied to Hurricane Ida. Those charges were partly offset by $300 million of net gains from the sale of assets.
Overall, Shell reported a quarterly net loss of $447 million for the quarter, a reversal of earnings of $489 million in the comparable year-earlier period.
In announcing results on October 28, Chief Executive Officer Ben van Beurden said: "This quarter we've generated record cash flow, maintained capital discipline and announced our intention to distribute $7 billion to our shareholders from the sale of our Permian assets. Today, we also set a new 2030 target to halve the absolute emissions from our operations, compared to 2016 levels on a net basis. Altogether, this is clear evidence of how we are accelerating our 'Powering Progress' strategy, purposefully and profitably."
The sale of its Permian Basin assets was part of Shell's long-term strategy of increasing the share of natural gas in its portfolio.
Speaking directly to investors, the Shell CEO emphasized its "disciplined" cash capex of about $13.2 billion through the first nine months of 2021, and a plan to come in at about $20 billion for the year.
Shell executed share buybacks of about $1 billion during the just-completed quarter, and highlighted its plan to distribute $7 billion in Permian Basin asset sale proceeds to shareholders in 2022.
The company is under a Dutch court's order, which Shell is appealing, to cut its global carbon dioxide (CO2) emissions 45% by 2030. In its earnings release, Shell said it was on track to achieve "an absolute emissions reduction target of 50% by 2030, compared to 2016 levels on a net basis, covering all Scope 1 and 2 emissions under Shell's operational control."
This past May, the Dutch court ordered Shell to cut so-called Scope 1, Scope 2 and Scope 3 emissions 45% by 2030. Scope 3 emissions are emissions released when customers consume Shell's products. Scope 1 and 2 emissions pertain to emissions by Shell and members of its supply chain. Scope 3 emissions account for the vast majority, reportedly up to 90%, of Shell's overall greenhouse gas emissions.
BP
Like Shell, quarterly results for BP were hurt badly by a $6.1 billion pre-tax, mark-to-market charge relating to the run up of gas prices toward the end of the quarter. This charge is expected to be reversed when prices decline and contracted volumes of liquified natural gas (LNG) are delivered.
The charges turned a $3.3 billion quarterly operating profit into a net loss of $2.5 billion.
But in reporting results November 2, the company highlighted "strong underlying results and cash flows," higher prices for oil and gas, continued net debt reduction, and about $300 million in asset sale proceeds received.
Looking past the accounting charge, Chief Executive Bernard Looney highlighted operating results: "This has been another good quarter for BP: Our businesses are generating strong underlying earnings and cash flow while maintaining their focus on safe and reliable operations. Rising commodity prices certainly helped, but I am most pleased that quarter by quarter, we're doing what we said we would--delivering significant cash to strengthen our finances, grow distributions to shareholders and invest in our strategic transformation. This is what we mean by performing while transforming."
Earlier this year, BP laid out a 10-year plan to reduce oil and gas production by 40% and boost spending on low-carbon energy to $5 billion per year. In an interview last week on CNBC, Looney said, "I understand ... there is a view amongst some in society that companies like ours are not part of the (climate change) solution." But he pointed to the company's investments in electrified transportation: "If you look at the substance in just one sector in one quarter, I think it's hard to argue that we are not part of the solution here."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn.
