Rising Crude Oil Prices: Impact on Q2 Earnings in the Energy Sector

Revenue Growth from Higher Crude Oil Prices

Higher crude oil prices have driven significant revenue growth in the energy sector, with Chevron and ExxonMobil reporting increased earnings due to higher sales volumes and advantaged asset growth. Chevron's U.S. upstream earnings rose by $294 million, while ExxonMobil's earnings increased by $430 million from Guyana liquids growth.

"Three Month Periods Ended March 31, 2024 and 2023 U.S. upstream earnings increased by $294 million primarily due to higher sales volumes of $990 million, including from legacy PDC assets, partly offset by higher depreciation, depletion and amortization of $490 million mainly from higher production, and lower realizations, primarily natural gas, of $120 million." --- (CVX, sec filing, 2024/Q1)

"Advantaged Volume Growth – Higher volumes from advantaged assets increased earnings by $430 million, mainly driven by Guyana liquids growth." --- (XOM, sec filing, 2024/Q1)

"Hedge funds appear to be particularly keen on energy stocks right now as a resilient global economy and conflict in the Middle East push crude oil prices above $80 U.S. per barrel." --- (CVX, press release, 2024/07/08)

"We delivered $36,000,000,000 in earnings $55,000,000,000 of cash flow from operations leading peers." --- (XOM, event transcript, 2024/05/29)

"We delivered $8.2 billion of earnings and $14.7 billion of cash flow. Even more important, we continued to strengthen the underlying earnings power of the company." --- (XOM, earning call, 2024/Q1)

Impact on Capital Expenditure and Investments

Chevron and ExxonMobil are adjusting their capital expenditure strategies to focus on efficiency and returns. Chevron emphasizes flexibility in modifying spending plans, while ExxonMobil plans significant investments in lower-emission technologies, contingent on opportunity and policy support. Both companies aim to optimize capital allocation amidst fluctuating crude oil prices.

"sustained lower commodity prices could result in the impairment or write-off of specific assets in future periods and cause the company to adjust operating expenses, including employee reductions, and capital expenditures, along with other measures intended to improve financial performance." --- (CVX, sec filing, 2024/Q1)

"Capital investment guidance in lower-emission investments is based on our corporate plan; however, actual investment levels will be subject to the availability of the opportunity set, public policy support, and focused on returns." --- (XOM, sec filing, 2024/Q1)

"During extended periods of low prices for crude oil and natural gas and narrow margins for refined products and commodity chemicals, the company has the flexibility to modify capital spending plans, discontinue or curtail the stock repurchase program, sell assets, and increase borrowings to continue paying the common stock dividend. The company remains committed to retaining high-quality debt ratings." --- (CVX, sec filing, 2024/Q1)

"Our company plans on investing over more than $20,000,000,000 through 2027 on carbon capture and storage, hydrogen and biofuels, ExxonMobil claims it will rely heavily on its existing workforce to execute these changes." --- (XOM, event transcript, 2024/05/29)

"And we've really structured our development plans there to focus on capital efficiency, higher returns, to the earlier answer, things we've got to compete for capital in our portfolio." --- (CVX, earning call, 2024/Q1)

Downstream Operations and Profitability

Chevron and ExxonMobil are focusing on improving the efficiency, safety, and reliability of their downstream operations to enhance profitability. Chevron is also evolving its refining system to produce lower carbon intensity fuels, while ExxonMobil is optimizing its asset portfolio to support growth in the downstream business.

"Other factors affecting profitability for downstream operations include the reliability and efficiency of the company’s refining, marketing and petrochemical assets, the effectiveness of its crude oil and product supply functions, and the volatility of tanker-charter rates for the company’s shipping operations, which are driven by the industry’s demand for crude oil and product tankers." --- (CVX, sec filing, 2024/Q1)

"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)

"Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations First Quarter 2024 Compared with First Quarter 2023 Key Financial Results Earnings by Business Segment   Three Months Ended March 31   2024 2023   (Millions of dollars) Upstream United States $ 2,075   $ 1,781 International 3,164   3,380 Total Upstream 5,239   5,161 Downstream United States 453   977 International 330   823 Total Downstream 783   1,800 Total Segment Earnings 6,022   6,961 All Other (521) (387) Net Income (Loss) Attributable to Chevron Corporation (1) (2) $ 5,501   $ 6,574 (1) Includes foreign currency effects." --- (CVX, sec filing, 2024/Q1)

"I know you have a very ambitious program for growth in the downstream business, but you have been trimming and high grading a bit with some asset sales." --- (XOM, earning call, 2024/Q1)

"In downstream, Chevron continues to evolve its refining system to produce lower carbon intensity fuels and products, by converting the diesel hydroheater at its El Segundo refinery to process either 100 percent renewable or traditional feedstocks." --- (CVX, press release, 2024/05/29)

Upstream Operations and Production Levels

Higher production levels are being achieved due to wells flowing against lower back pressure (CVX). Government mandates are impacting sustainable production levels (XOM). Production in the Permian is trending better than expected (CVX). Increased refining capacity and the Pioneer acquisition aim to boost production efficiency (XOM). Incremental production is expected from new process equipment (CVX).

"What happens here is, we get higher production because the wells are now flowing against lower back pressure." --- (CVX, earning call, 2024/Q1)

"Government Mandates are changes to ExxonMobil's sustainable production levels as a result of production limits or sanctions imposed by governments." --- (XOM, sec filing, 2024/Q1)

"Following another strong quarter in the Permian, production is trending better than our previous guidance, and we now expect first half production to be down less than 2% from the fourth quarter." --- (CVX, earning call, 2024/Q1)

"We also added 250,000 barrels per day of refining capacity in early 2023 at a refinery in Belmont, Texas. Additionally, we just closed on the Pioneer transaction and plan to get more barrels out of the ground more efficiently and with a lower environmental footprint than either company could achieve separately, which will help to address the greenhouse gas emissions challenge." --- (XOM, event transcript, 2024/05/29)

"And then as we get into the third quarter, we'll start commissioning some of the process equipment as part of FGP, which, as you say, first half start-up next year is when you see the incremental production come online." --- (CVX, earning call, 2024/Q1)

Future Outlook and Strategic Decisions

ExxonMobil's future outlook involves evolving environmental standards, strategic use of balance sheet capacity for M&A and buybacks, global investment considerations, and developing long-term plans. Meaningful development remains a strategic priority, ensuring adaptability and proactive community engagement.

"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/Q1)

"I thought it would be a good opportunity if you could remind us how you think about utilizing that balance sheet capacity moving forward given you are still operating from a position of strength, whether it be deploying for future M&A, increasing buybacks or other opportunities. Thanks." --- (XOM, earning call, 2024/Q1)

"So that's certainly one of the things that we look at in any place across the globe as we look to make future investment decisions. John Royall: Thank you. Darren Woods: Thank you." --- (XOM, earning call, 2024/Q1)

"As we develop that, learn more, we'll put together more longer-term plans, and once we have confidence that we've got a clear line of sight to how this plays itself out going forward in the future, we'll bring that to the community and share that with all of you." --- (XOM, earning call, 2024/Q1)

"As I noted, meaningful development is one of our strategic priorities. This is normal course of business for our company." --- (XOM, event transcript, 2024/05/29)

Regulatory Changes and Compliance Costs

Regulatory changes and compliance costs are significantly impacting ExxonMobil's operations. Political or regulatory developments, including obtaining necessary permits, can materially affect future results. Additionally, revisiting executive pay incentives and reevaluating greenhouse gas reduction targets are crucial steps to align with regulatory compliance and maintain ExxonMobil's leadership in the energy sector.

"Actual future results, including project plans, schedules, capacities, production rates, and resource recoveries could differ materially due to: changes in market conditions affecting the oil and gas industry or long-term oil and gas price levels; political or regulatory developments including obtaining necessary regulatory permits; reservoir performance; the outcome of future exploration efforts; timely completion of development and construction projects; technical or operating factors; and other factors cited under the caption 'Factors Affecting Future Results' on the Investors page of our website at exxonmobil.com and under Item 1A." --- (XOM, press release, 2024/05/07)

"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)