(Bloomberg) – Exxon Mobil Corp. and Chevron Corp. declined after disappointing first-quarter performance, despite posting strong production increases at key oil projects in Guyana and the Permian Basin.
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Exxon fell as much as 3.5% and Chevron fell 0.7% on Friday, even as crude oil prices rose. Exxon reported adjusted earnings per share 13 cents below the Bloomberg consensus, due to higher refinery maintenance costs and a range of accounting charges. Chevron, meanwhile, had to make higher-than-expected capital expenditures, causing free cash flow to fall $900 million short of expectations.
The results come amid a shift in investor sentiment favoring oil production growth to benefit from global supply concerns that have supported crude oil prices.
A bright spot for Exxon was operating cash flow of $14.7 billion, which was $1 billion above forecasts, driven by a significant increase in Guyana’s crude oil production.
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“Every quarter we will have a number of non-cash, just slightly more unusual expenses that go up and down,” Chief Financial Officer Kathy Mikells said in an interview. “This quarter we had a number of smaller events that, taken together, had greater significance and are difficult for analysts to model.”
Exxon began production at Payara, its third project in Guyana, late last year ahead of schedule, adding 220,000 barrels of daily supplies that will generate profits even if crude oil prices fall to the $35 mark.
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“We continue to deliver projects faster and under budget, so we just had great execution in Guyana,” Mikells said, noting that gross daily production is now more than 600,000 barrels, up from 440,000 in the last three months of 2023.
Exxon’s performance in Guyana underscores why arch-rival Chevron wants to get into the project via a $53 billion takeover of Hess Corp., which holds a 30% stake. Exxon claims it has a right of first refusal over Hess’s stake, while Chevron says that doesn’t apply because the deal is a corporate merger.
The arbitration process is still in a “very early stage,” Mikells said. Each side has selected an arbitrator who will sit on a three-member panel, she said. Hess this week extended the completion date of his contract with Chevron by six months, to October.
According to Biraj Borkhataira of RBC Capital Markets, an extensive maintenance schedule for the refinery contributed to the earnings shortfall. Exxon’s accounting costs were non-cash items related to tax and inventory balance adjustments, Mikells said.
Exxon “has performed strongly in recent months and we believe investors have been constructive about the name’s results, particularly as other downstream leveraged names reported results that were above expectations,” Borkhataira said. “We believe today’s balance sheet could be viewed as negative, with both earnings and underlying cash flow below expectations.”
At Chevron, first-quarter adjusted earnings of $2.93 per share were 3 cents above the average of analyst estimates in the Bloomberg Consensus. Crude oil production of nearly 2 million barrels per day exceeded forecasts.
Production from Chevron’s Permian Basin was equivalent to 859,000 barrels per day in the period, compared to 867,000 in the final three months of 2023.
Chief Executive Mike Wirth had warned that production would temporarily decline before rising again in the second half of the year.
– With support from David Wethe, Mitchell Ferman and Ruth Liao.
(Updates stock price movements in second paragraph.)
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