Exxon, Chevron Steer Windfall Profits Into Debt Reduction

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(Bloomberg) — ExxonMobil Holdings Corp. and Chevron Corp. plowed blowout profits into debt reduction rather than huge buyback increases in a sign of Big Oil’s caution about how long war-driven price rallies will last. 

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The biggest US oil companies more than doubled second-quarter net income on the heels of global energy market disruptions stemming from conflicts in the Persian Gulf and Russia. But in a pivot from previous oil-sector heydays, the supermajors refrained from lavishing the proceeds on investors. 

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ExxonMobil lowered net debt by more than $7 billion during the quarter, the equivalent of almost half the company’s adjusted net income for the period.

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Meanwhile, Chevron steered a record $8.4 billion into debt reduction, slashing its ratio of net debt to cash flow from operations by more than half, according to a statement Friday.  

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The North American giants’ biggest European rivals, Shell Plc and TotalEnergies SA, also held the line on shareholder rewards in recent days and instead trained its massive windfall profit on whittling debt. 

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Shell cut net debt by about $10.8 billion, crimping its ratio of net to to equity to just under 19% from more than 23% in the prior quarter. The company held buybacks even at $3 billion. TotalEnergies’ gearing fell close to 13%, excluding leases, from almost 16%.

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The largest crude-supply disruption in history is proving highly profitable for the supermajors as customers scramble to replace flows from the Persian Gulf, a gateway for 20% of the world’s petroleum. Crude has dropped since spiking to more than $125 a barrel in April due to on-off talks between the US and Iran, but refining margins are still near record levels, meaning some of the excess profits will likely endure into the second half of the year. 

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ExxonMobil narrowly missed profit forecasts despite soaring crude prices and widening fuel-making margins as the US-Iran conflict enters its sixth month. The stock was down 2.2% at 9:35 a.m. in New York.

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Adjusted second-quarter earnings of $3.52 a share were 2 cents below the average estimate in a Bloomberg survey. Exxon’s miss was due in part to refinery maintenance that meant it wasn’t able to fully capture high prices for gasoline, diesel and jet fuel. 

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That said, overall profit of $14.7 billion was the largest since Russia’s 2022 invasion of Ukraine that upended global markets.

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Chevron, for its part, reaped its highest quarterly profit on record, surpassing the prior all-time highs achieved in 2022. The stock rose as much as 1.8%.

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The explorer lifted production by 20% to the equivalent of 4.07 million barrels a day. Assets in the US Gulf of Mexico and Kazakhstan ramped up output during the quarter while the company also benefited from the integration of Hess Corp. assets acquired in last year’s $55 billion takeover. The company’s US production reached a record high.