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

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

ExxonMobil scored higher profits due to increased oil prices amid the economic recovery.
ExxonMobil scored higher profits due to increased oil prices amid the economic recovery.

NEW YORK: US oil giants ExxonMobil and Chevron reported strong profits 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 $4.7 billion in the second quarter, compared with a loss of $1.1 billion in the same three months of last year when pandemic restrictions devastated energy demand.

Revenues more than doubled to $67.7 billion.

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 $16 billion to $19 billion for all of 2021.

Chevron, meanwhile, brought in earnings of $3.1 billion, compared with a loss of $8.3 billion a year earlier, as revenues more than doubled to $37.6 billion.

"Second quarter earnings were strong, reflecting improved market conditions, combined with transformation benefits and merger synergies," said Mike Wirth, Chevron's chief executive.

"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 $2-3 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 focused on environmental, social and governance issues or ESG.

"ESG investors are becoming a bigger force," Glickman said. "They really want to see more focus on renewable energy, not on fossil fuel."

At quarterly meetings earlier this spring, ExxonMobil and Chevron each suffered defeats in votes on shareholder proposals from investors who favor more focus on the energy transition.

At ExxonMobil, three directors who favored a more aggressive response to climate change were elected despite extensive company campaigning against them.

ExxonMobil shares fell 2.3% to $57.57 percent, while Chevron dropped 0.7% to $101.81.

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