The two major oil companies in the United States saw a decline in net profits in Q3, with low oil and gas prices and falling refining margins | Earnings report insights
After experiencing strong performance in 2022 and 2023, the performance of oil giants has generally declined this year. The reasons include the drop in prices of commodity oil and natural gas, as well as the reduced profit margins from converting crude oil into gasoline and other products, which offset the performance boost from the surge in production
On Friday, the two major oil giants in the United States, ExxonMobil and Chevron, both announced their earnings reports, with net profits declining in the third quarter.
The key financial data for ExxonMobil, the largest oil company in the West, is as follows:
Profit: Net profit was $8.6 billion, a year-on-year decrease of 7%. EPS was $1.92, compared to an expectation of $1.88.
Revenue: Operating revenue was $90 billion, a year-on-year decrease of about 1%.
Dividends and buybacks: The company returned $9.8 billion to shareholders in the last quarter and announced an increase in dividends, raising the fourth-quarter dividend to $0.99, continuing a record of 42 consecutive years of dividend increases.
The key financial data for Chevron, the second-largest oil company in the West, is as follows:
Profit: Chevron's profit was $4.5 billion, a year-on-year decrease of 30%. Adjusted EPS was $2.51, compared to an expectation of $2.43.
Revenue: Operating revenue was $51 billion, exceeding expectations but down 6% year-on-year.
Dividends and buybacks: Chevron returned a record $7.7 billion to shareholders in the last quarter.
The performance of the two major U.S. oil companies is similar to that of their European counterparts in this earnings season. Earlier this week, BP recorded its lowest quarterly profit since the COVID-19 pandemic, while TotalEnergies' profit was also at a three-year low. Shell's performance received some buffer due to its booming liquefied natural gas business.
In 2022, the Russia-Ukraine conflict led to a surge in oil and gas prices, driving refining profit margins up, and overall industry profits soared to record levels. Although there has been a decline in 2023, industry profits remain at a high level.
After strong performances in 2022 and 2023, the results of oil giants have generally declined this year. The reasons include falling prices of crude oil and natural gas, as well as reduced profit margins from converting crude oil into gasoline and other products, offsetting the performance boost from increased production.
This year, due to ongoing supply surpluses, U.S. natural gas prices have fallen to historic lows. Global crude oil prices are also under pressure due to weak demand and sluggish economic growth.
Chevron CEO Mike Wirth stated that the issue is not only oil but also refining profit margins, which were particularly strong in the third quarter of last year but are not strong at all in the third quarter of this year. If demand remains weak and OPEC restores supply as planned, prices will continue to face downward pressure in the short term.
ExxonMobil's CFO Kathy Mikells expressed a similar view. "The biggest factor affecting us annually is the industry's price margins, especially in natural gas prices and refining margins, both of which have fallen from historical highs."
Despite relatively weak profits, ExxonMobil and Chevron's earnings reports exceeded Wall Street expectations, as both companies cut costs and increased production, particularly in the Permian Basin in Texas and New Mexico, which is the largest oil field in the United States.
According to data released this week by the U.S. Energy Information Administration (EIA), U.S. crude oil production reached a record high of 13.4 million barrels per day in August ExxonMobil continues to increase its production from the lucrative development projects off the coast of Guyana. There are disagreements between ExxonMobil and Chevron regarding this project, as Chevron seeks to acquire a stake in it through its $53 billion acquisition of Hess. ExxonMobil claims it has a right of first refusal on Hess's stake in the project and has initiated arbitration proceedings. The case is expected to be heard next year.
Both ExxonMobil and Chevron continue to return funds to shareholders through dividends and stock buybacks. However, the energy sector's ability to consistently return funds to shareholders is being questioned in the context of weak oil and gas prices. BP announced on Tuesday that it will reassess its stock buyback plan for 2025 in February next year
