Oil and Gas Sector: Navigating Future Market Volatility

Current Market Conditions and Their Impact

Current market conditions in the oil and gas sector are driven more by supply than demand, with demand still growing. Government policies and standards significantly influence the market, and companies like ExxonMobil and Chevron are navigating these challenging conditions with cautious optimism and strategic positioning.

"Those market conditions are driven more by supply than demand. Frankly, we're continuing to see growth in demand, not as high as we've seen historically, but continued good growth and frankly in the first quarter saw some of that pick up." --- (XOM, earning call, 2024/Q1)

"And so we're pleased with both of these. There are markets, maybe to your point about economics that are in some ways heavily influenced by government policy, be it the renewable fuel standard and the Low Carbon Fuel Standard, which affect renewable fuels or some of the things in the investment or the inflation reduction act that affect hydrogen." --- (CVX, earning call, 2024/Q1)

"So I think we feel good about where we're at in a very difficult market. Our view is that those market conditions are going to be with us for a little while here going forward, but we also feel like we're well positioned to be successful there." --- (XOM, earning call, 2024/Q1)

"The financial impacts of such risks, including presently imposed sanctions, are not currently material for the company; however, it remains uncertain how long these conditions may last or how severe they may become." --- (CVX, sec filing, 2024/Q1)

"And you see that playing out on our chemical business with earnings that frankly are well above what would be expected given the challenging market conditions that we see in the margin environment. China is growing despite maybe some of the – it is not growing at the rates that we've seen historically the very high rates, but still growing at a healthy clip." --- (XOM, earning call, 2024/Q2)

Technological Advancements and Their Role

Technological advancements in the oil and gas sector are driving significant improvements in drilling speed, reliability, and production optimization, as well as fostering innovation in green hydrogen and renewable diesel projects. These advancements are crucial for enhancing energy security, operational excellence, and sustainable energy solutions.

"Their talent, technology, innovation and commitment to customer success align with SLB's own culture and commitment to the same.By bringing Champagnext into SLB, we create a step change in value for our customers, our shareholders and our employees as we continue to drive energy innovation for our balanced planet." --- (SLB, event transcript, 2024/04/02)

"We continued to advance growth opportunities in our traditional and new energies businesses through adding new exploration plays in West Africa and South America, achieving key milestones on the ACES green hydrogen project and commissioning of the Geismar renewable diesel plant expansion, which is expected to come online by the end of the year." --- (CVX, earning call, 2024/Q2)

"We deployed advancements that improved drilling speed and reliability and set several [general] (ph) records during the quarter." --- (HAL, earning call, 2024/Q2)

"The deal strengthens American's energy security by bringing the best technologies, operational excellence and financial capability to an important source of domestic supply." --- (XOM, event transcript, 2024/05/29)

"We started out on a purposeful journey to build the best production focused company in the energy industry, driven by our vision of improving lives and focus on helping our customers unlock energy the world needs in an economically and environmentally sustainable way. We have long viewed the production well site as the playing field in which we are uniquely well positioned to deliver impactful life of field production optimization solutions to our customers." --- (SLB, event transcript, 2024/04/02)

Regulatory Changes and Adaptation Strategies

Chevron and ExxonMobil are adapting to regulatory changes by maintaining portfolio flexibility, revisiting executive pay incentives, developing future-oriented products, and navigating evolving environmental standards. European regulations on carbon footprint reduction present additional investment challenges.

"The company will continue to maintain flexibility in its portfolio to be responsive to changes in policy, technology, and customer and consumer preferences." --- (CVX, sec filing, 2024/Q1)

"Our proposal, item 4, urges the compensation committee of the Board of Directors to revisit executive pay incentives and eliminate or reevaluate greenhouse gas reduction targets that do not align with legitimate fiduciary goals. This approach will help ensure that ExxonMobil remains focused on its core competencies and maintains its position as a leading energy producer." --- (XOM, event transcript, 2024/05/29)

"And we continue to develop products and build businesses that will enable us to grow properly far into the future across a wide range of scenarios, including a rapid energy transition. With that, we'd be happy to take your questions." --- (XOM, earning call, 2024/Q2)

"In addition, historical, current, and forward-looking environmental and other sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future, including future rule-making." --- (XOM, sec filing, 2024/Q2)

"If you look at expanded disclosure requirements that Europe is looking for, or if you look at regulation around reducing carbon footprint and not necessarily implementing regulation that's technology agnostic and focused on just reducing carbon intensity, that all makes Europe a much tougher investment proposition." --- (XOM, earning call, 2024/Q1)

Environmental Concerns and Sustainability Efforts

Chevron and ExxonMobil are actively addressing environmental concerns through conservation, sustainability training, and technological advancements. Both companies emphasize reliable, safe, and efficient operations, with Chevron focusing on carbon reduction and ExxonMobil tackling the complexities of low-carbon business models.

"The company is also deeply committed to conservation, education, and sustainability career training by partnering with local and national organizations that help protect land and oceans." --- (CVX, press release, 2024/04/10)

"And frankly, our focus has been on making sure they are running reliably, running safely, running efficiently, and these centralized organizations and our global operations and sustainability organization have been a huge enabler to helping each of these facilities and our chemical plants, our refineries, lubricant facilities, all improve their performance, run better, run more profitably, run safer, run more reliably." --- (XOM, earning call, 2024/Q1)

"Helping to protect the environment takes dedicated people, effective processes, and leading technologies." --- (CVX, Twitter, 2024/05/23)

"And so the complexity that I see in the low-carbon space, that's a particularly challenging one because of all the moving parts and all the work that has to be done to try to piece those things together to come up with, frankly, a business and business model that, one, is sustainable for the long term." --- (XOM, earning call, 2024/Q2)

"We are dialing back heat to aid in lower carbon progress. Learn how we are working towards improving our environmental performance in our San Joaquin Valley Business Unit: https://t.co/jnsxPxtbqt https://t.co/4d1EDDn1Pz" --- (CVX, Twitter post, 2024/07/01)

Supply Chain Dynamics and Resilience

ExxonMobil and Chevron are enhancing supply chain resilience by leveraging remote logistics, developing specialized drilling rigs, and scaling operations. ExxonMobil's efforts to build new value chains highlight the complexities of balancing supply and demand while establishing financial incentives.

"So we're already utilizing their remote logistics operations center in our own drilling and completions operations in order to improve supply chain." --- (XOM, earning call, 2024/Q2)

"We drilled wells. We developed a drilling rig. We built a drilling rig with our partners to enable drilling at these depths and the equipment to allow us to do that." --- (CVX, earning call, 2024/Q2)

"Then, I'll just mention supply chain. Again, another central organization we stood up last year, really trying to now leverage the scale of the entire company." --- (XOM, earning call, 2024/Q1)

"Darren Woods: Yeah, sure. I'm happy to do that, Steve. What I would say is it's a – that work we're doing to develop it is I think demonstrating the difficulty of starting brand new businesses and value chains where none exists, and that we're kind of simultaneously trying to build demand, trying to build supply, and then trying to in the early days of this market establish financial incentives to do that." --- (XOM, earning call, 2024/Q1)

Future Outlook and Preparation Strategies

ExxonMobil acknowledges the limitations in projecting future policy and technology advancements for net zero by 2050, while Chevron emphasizes a strong pipeline of organic growth opportunities. ExxonMobil is cautiously optimistic about future opportunities, focusing on cost reduction and exploring Carbon Ventures with a realistic yet aggressive business plan.

"However, the Outlook does not attempt to project the degree of required future policy and technology advancement and deployment for the world, or ExxonMobil, to meet net zero by 2050." --- (XOM, sec filing, 2024/Q1)

"And, as I tried to cover in our prepared remarks, we’ve got a really strong queue of organic growth opportunities in flight right now." --- (CVX, earning call, 2024/Q2)

"However, the Global Outlook does not attempt to project the degree of required future policy and technology advancement and deployment for the world, or ExxonMobil, to meet net zero by 2050." --- (XOM, press release, 2024/05/03)

"So I see a role for us in the future if this nut gets cracked. We feel good about what we've seen so far, but we're very early into it, and we're hopeful that we'll make the progress that we're aspiring to and continue to drive the cost down." --- (XOM, earning call, 2024/Q1)

"I think there is a big opportunity there. So but that's – I’d say Carbon Ventures is still early in the technology cycle, but I think we've gone far enough along to see some real opportunity there. And as I said in my prepared remarks, the challenge I've given the Product Solutions organization is what's a realistic but aggressive business plan look like and what would be the investment required to establish that." --- (XOM, earning call, 2024/Q2)