ExxonMobil and Chevron's profits fall short of expectations due to weak refining business and oversupply of chemicals, causing their stock prices to decline.

Exxon Mobil and Chevron, the two oil giants, announced their earnings reports before the market opened on the 27th. Both companies' adjusted earnings per share fell short of expectations, mainly due to the underperformance of their refining and chemical businesses.

According to the reports, Exxon Mobil's net profit for the third quarter was $9.1 billion, ending three consecutive quarters of profit decline. However, the adjusted earnings per share of $2.27 were lower than the analysts' expectation of $2.36, mainly due to oversupply of chemicals produced by its new factories.

Meanwhile, Chevron's net profit for the third quarter was $6.5 billion, a 42% decrease compared to the same period last year. The adjusted earnings per share of $3.05 were significantly lower than the analysts' expectation of $3.75. The company attributed the significant profit decline to its overseas refining business.

After the opening of the US stock market on the 27th, Exxon Mobil's stock price fell by 1.77% to $105.64, while Chevron's stock price plummeted by nearly 6% to $146.41, making it one of the biggest decliners in the S&P 500 index.

Previously, both companies had made historic acquisitions to significantly expand their crude oil production. Exxon Mobil planned to acquire shale oil giant Pioneer Natural Resources for $60 billion, while Chevron proposed a $53 billion acquisition of Hess Corp. These moves demonstrated the companies' determination to lead European oil giants and other US peers by controlling large-scale resources to support future decades of crude oil production.

However, despite Exxon Mobil's lower-than-expected profits, the company raised its quarterly dividend to $0.95 per share, higher than the market's expectation of $0.94. At the same time, the company's free cash flow in the third quarter more than doubled from the previous quarter to $11.7 billion, far exceeding the market's expectation of $9.36 billion.

During the earnings conference call, Exxon Mobil CEO Darren Woods assured analysts that the company considers dividends as a commitment. "As we have seen during the pandemic, even in difficult times, we are working hard to continue fulfilling our dividend commitments to shareholders."

Exxon Mobil CFO Kathy Mikells stated that the company relied on its investments during the COVID-19 pandemic and its cost-cutting plans. Over the past four years, Exxon Mobil has already laid off 13,000 employees, accounting for 17% of its global workforce, and has reduced costs by $9 billion annually, enough to cover more than half of its dividend expenses. Mikells mentioned that after achieving the goal of cutting $9 billion in costs three months ahead of schedule, the company sees further potential for "structural" cost reductions.

Furthermore, Exxon Mobil's acquisition of Pioneer Natural Resources will allow the company to reach peak oil production in the Permian Basin, enabling flexible production based on crude oil demand during the energy transition. Mikells said that investors have responded positively to the company's acquisition of Pioneer Natural Resources, fully understanding the strategic and synergistic effects that the company expects to achieve. In contrast, the situation for Chevron is not looking good. The net profit of its overseas refining division in the third quarter was only half of what analysts had expected. The company's oil extraction business in the Permian Basin, the main shale oil production area in the United States, has been lagging behind, and the cost of the large Tengiz oil field project in western Kazakhstan has increased by about 4%.

Chevron's acquisition of Hess will also give the company a 30% stake in ExxonMobil's operating business in Guyana. However, if we calculate the cost per flowing barrel, the price of this transaction for Chevron is too high. CEO Mike Wirth has been trying to reassure investors about this issue, promising to increase dividends and buybacks. This transaction will also allow Chevron to reduce its excessive reliance on the Permian Basin and the oil fields in Kazakhstan, in order to achieve its future production targets.