What’s News in Earnings: Oil Companies Look Forward to a Windfall

SPEAKER_1 (0:01)

Ready to soundtrack your summer? With Red Bull Summer All Day Play, you choose a playlist that fits your summer vibe the best. Are you a festival fanatic, a deep end DJ, a road dog, or a trail mixer? Just add a song to your chosen playlist and put your summer on track.

Red Bull Summer All Day Play. Red Bull gives you wings.

Visit redbull.com/brightsummerahead to learn more. See you this summer.

Benoît Morenne (0:31)

Hey, listeners, it's Tuesday, May 5th. I'm Benoit Morin for The Wall Street Journal. And this is What's News in Earnings, our look at some of the biggest themes standing out this earnings season. And well, it's been a roller coaster of a quarter for oil companies. They entered it concerned about an oversupply of oil in global markets, but the Iran War and the closure of the Strait of Hormuz mean the world is now short crude and other petroleum products. Oil prices have jumped and Exxon and Chevron both beat Wall Street's expectations. But the big picture is murky. The Trump administration and Iran are fighting for control of the Strait and American producers don't know how and when this ends. And because they don't know how sustainable the rising prices will be, they're not ready to pump much more oil than they are, at least for now.

We're joined now by Wall Street Journal energy reporter Collin Eaton, who covers big oil.

So Collin, oil prices surged this quarter on the back of the Iran war. Did that translate into a windfall for Exxon, Chevron and the other majors?

Collin Eaton (1:44)

So it definitely padded their cash position. Exxon, for example, the cash flow from its operations in places like West Texas and Guyana, that all added up to almost $14 billion.

That's higher than the company's quarterly average for the past three years. And higher oil and gas prices definitely will keep boosting their profits as long as the Strait of Hormuz is blocked. And for a good while after it reopens, it's going to take months for oil markets to settle down. And while that's happening, these two companies are going to continue to collect higher revenue. But in the first quarter, it got a little complicated. Exxon and Chevron both had to take on paper losses. This is related to the way they do their accounting on physical trades in the market. This kind of shaved off a couple of billion dollars from their quarterly net income.

So suffice to say, the companies made some trades that have yet to close on the physical market. But when those unwind, they're going to further pad the company's bottom lines. So yeah, they are expected to make a ton of money this year. That's why their shares are near all time highs.

Benoît Morenne (3:09)

So what did the companies say about how they plan to use all this cash? Could they drill more?

Collin Eaton (3:15)

You'd think so, right? But since the pandemic, the oil pumping industry, as we know, it has been a lot slower to react to these sort of big swings in prices. They're a bit more conservative now than they were a decade ago during the shale boom. These days, they're focused on dividends and share repurchases. So let's look at the numbers. Since 2022, Exxon, Chevron and another big US oil company, ConocoPhillips, they've spent $301 billion on dividends and share repurchases or buybacks. By comparison, they spent about $222 billion reinvesting in projects and in the oil patch generally. So you can see that where their priorities have shifted. This time is no different. They're sort of sticking to their capital expenditure plans that they set out months before the Iran conflict began.

Benoît Morenne (4:07)

So those big old CEOs, how do they see the next few months playing out for global energy markets and perhaps more importantly for US consumers?

Collin Eaton (4:15)

Well, it's pretty grim. I'm not going to be taking any cross-country road trips this summer. So yesterday, the national average for a gallon of regular gasoline reached $4.45.

But yeah, the executive warned that we haven't seen the worst of the supply crunch in physical markets. As the straight is snarled, the longer it's snarled, ultimately, it's going to translate into higher prices at the pump. Chevron CEO Mike Worth, he said the energy market is going to be radically changed by the aftermath of the closure of the straight-up Hormuz.

SPEAKER_4 (4:52)

In a world that is getting very tight on products, we're going to keep our assets very full and be able to provide a significant supply into markets that, you know, dearly need it.

Collin Eaton (5:03)

And both Exxon and Chevron, they're churning out as much gasoline and jet fuel into one of the products as they can right now. Chevron's refineries in the US, they said were producing record amounts of fuel. Exxon has been redirecting tankers from the Gulf Coast to Asia for fuel buyers with more immediate needs.