ExxonMobil and Chevron join European oil majors in posting steep fall in profits

While the U.S. oil and gas majors, Chevron and ExxonMobil, recorded strong operating and financial performance in the second quarter of 2023, this still represents a sharp decrease on a year-over-year basis, as energy prices went into free fall after reaching all-time high levels last year.

It is no secret that the fossil fuel industry raked in all-time-high profits in 2022, but the quarterly results from 2023 prove without a doubt that even though bumper profits are no longer in evidence, the energy players have still done well for themselves despite the softening in the oil and gas price environment. This is demonstrated by the quarterly results posted by Chevron and ExxonMobil’s European counterparts: Equinor ($7.54 billion), Shell ($5.07 billion), TotalEnergies ($5 billion), and Eni.

With heatwaves pushing climate change concerns to the forefront, many oil majors, such as TotalEnergies and Eni, ramped up their efforts to tackle the double whammy of ensuring energy security while curbing their carbon footprint by adding more low-carbon and renewable energy to their supply mix. Based on the available quarterly results, this strategy seems to have borne fruit.

The U.S. oil major recorded earnings of $7.9 billion in 2Q 2023, compared with $11.4 billion in 1Q 2023 and $17.9 billion in 2Q 2022. Excluding the identified item associated with additional European taxes on the energy sector, earnings were $7.9 billion in 2Q 2023 compared with $11.6 billion in the prior quarter and $17.6 billion in 2Q 2022. The firm explains that lower natural gas realisations and industry refining margins adversely impacted earnings, but results still benefited from the absence of prior quarter unfavourable derivative mark-to-market impacts.

Darren Woods, ExxonMobil’s chairman and chief executive officer, pointed out: “The work we’ve been doing to improve our underlying profitability is reflected in our second-quarter results, which doubled from what we earned in a comparable industry commodity price environment just five years ago.”

The company’s capital and exploration expenditures were $6.2 billion in the second quarter of 2023 and $12.5 billion for the first half of 2023, in line with the company’s full-year guidance of $23 billion to $25 billion. Therefore, the U.S. firm remains on track to deliver $9 billion of structural cost savings by the end of 2023 relative to 2019, having achieved cumulative structural cost savings of $8.3 billion to date.

ExxonMobil’s cash flow from operations totalled $9.4 billion and free cash flow was $5 billion, which includes a net working capital impact of $3.6 billion primarily driven by higher seasonal cash tax payments. On the other hand, the cash flow from operations excluding working capital was $13 billion while the debt-to-capital ratio remained at 17 per cent and the net-debt-to-capital ratio was 5 per cent, reflecting a period-end cash balance of $29.6 billion.

According to the company, its Upstream second-quarter earnings were $4.6 billion, a decrease of $1.9 billion from the first quarter of 2023 due to lower natural gas prices, which declined 40 per cent, and seasonally higher scheduled maintenance. Compared to the same quarter last year, earnings decreased by $6.8 billion. Excluding identified items, earnings declined $6.5 billion, driven by lower crude and natural gas realisations.

ExxonMobil highlighted that the production in Guyana and the Permian grew by a combined 20 per cent compared to the prior-year quarter. This was offset by impacts from divestments, the Sakhalin-1 expropriation, and government-mandated curtailments. As year-to-date earnings were $11 billion, this represents a decrease of $4.8 billion versus the first half of 2022. The prior-year period was negatively impacted by an identified item associated with the Sakhalin-1 expropriation.

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As higher production from advantaged projects in Guyana and the Permian provided a partial offset to lower crude and natural gas realisations, ExxonMobil’s year-to-date production was 3.7 million oil-equivalent barrels per day. Excluding divestments, entitlements, government mandates, and the Sakhalin-1 expropriation, net production grew by more than 160,000 oil-equivalent barrels per day.

“Production is up 20 per cent year-over-year in Guyana and the Permian, and we are playing a leading role in the industry’s energy transition with an agreement to acquire Denbury and with three world-scale CO2 offtake agreements. This reflects the significant opportunity to profitably grow our Low Carbon Solutions business by creating a compelling customer decarbonisation proposition with the potential to reduce Gulf Coast industrial emissions by 100 million metric tons per year,” added Woods.

The U.S. energy giant expanded its decarbonisation efforts further by entering into a definitive agreement to acquire Denbury, which will enable it to gain access to one of the largest owned and operated carbon dioxide (CO2) pipeline networks in the United States at 1,300 miles, most of which is located along the U.S. Gulf Coast.

The planned acquisition includes ten strategically located onshore sequestration sites while an established, cost-efficient transportation and storage system accelerates CCS deployment for ExxonMobil and third-party customers and underpins multiple low-carbon value chains including CCS, hydrogen, ammonia, biofuels, and direct air capture.

The company also entered into a long-term commercial agreement with Nucor Corporation, one of North America’s steel producers, which will enable the firm, subject to government permitting, to capture, transport, and store up to 800,000 metric tons of CO2 per year from Nucor’s steel manufacturing site in Convent, Louisiana. The project, expected to start up in 2026, will tie into the same CO2 infrastructure that will be used by the company’s project with CF Industries.

The agreement with Nucor brings the total contracted CO2 to transport and store for third-party customers to 5 million metric tons per year, which is equivalent to replacing approximately 2 million gasoline-powered cars with electric vehicles, roughly equal to the number of electric vehicles on U.S. roads today.

In addition, the U.S. giant recently made a final investment decision for the Uaru project in the Stabroek Block and plans to have at least six FPSOs with a production capacity of more than 1 million gross barrels of oil per day online on the block in 2027, with the potential for up to 10 FPSOs to develop gross discovered recoverable resources.

Earlier this month, ExxonMobil received a stamp of approval for its 35-well exploration and appraisal drilling campaign on the Stabroek Block offshore Guyana from the country’s Environmental Protection Agency (EPA). This will enable the oil major to discover new and re-evaluate existing recoverable hydrocarbons from reservoirs in the block, enabling potential future development projects.

Chevron’s earnings in the second quarter of 2023 were $6 billion, compared with $6.6 billion in 1Q 2023 and $11.6 billion in 2Q 2022, primarily due to lower upstream realisations and lower margins on refined product sales. The U.S. giant outlined that $225 million of a one-time tax benefit related to impairments that were recognised in prior periods was included in this quarter while foreign currency effects increased earnings by $10 million.

The U.S. player posted adjusted earnings of $5.8 billion for the second quarter of 2023, compared to adjusted earnings of $6.7 billion in the first quarter of 2023 and $11.4 billion in 2Q 2022. Chevron’s sales and other operating revenues in 2Q of 2023 were $47.2 billion, down from $65.4 billion in the year-ago period primarily due to lower commodity prices.

Commenting on this, Mike Wirth, Chevron’s chairman and chief executive officer, remarked: “Our quarterly financial results remain strong, and we returned record cash to shareholders. Strong execution resulted in record Permian Basin production this quarter. Our consistent performance and disciplined use of capital are driving superior value for our shareholders.”

Moreover, the company has delivered more than 12 per cent ROCE for eight straight quarters and returned $7.2 billion to shareholders in the quarter, an increase of 37 per cent from the year-ago period. Chevron plans to further increase its investments in the United States with the announced agreement to acquire PDC Energy in an all-stock transaction, with closing anticipated in August 2023. This acquisition is expected to add $1 billion to annual free cash flow.

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The U.S. firm’s worldwide net oil-equivalent production was up 2 per cent from the year-ago quarter primarily due to record Permian Basin production of 772,000 barrels of oil equivalent per day. The international net oil-equivalent production was up 16,000 barrels per day from a year earlier primarily due to lower impacts from turnarounds in Australia, partially offset by shutdowns in Canada due to wildfires. The U.S. net oil-equivalent production was also up from the second quarter of 2022 and set a new quarterly record primarily due to growth in the Permian Basin.

During 2Q 2023, Chevron achieved the first natural gas production from the Gorgon Stage 2 development in Australia, supporting long-term energy supply in the Asia-Pacific region. The U.S. player believes that this project will continue to be an important pillar of the Australian economy in the coming decades, thus, unlocking this energy puts Australia in a prime position to meet future demand and provide “a clean-burning fuel, both at home and overseas.”

The company also received approvals to extend Block 0 concession in Angola through 2050 and reached a final investment decision with partners to build a third gathering pipeline that is expected to increase production capacity from approximately 1.2 to nearly 1.4 billion cubic feet per day at the Leviathan field in Israel.

Following the release of quarterly reports from Chevron and ExxonMobil, which indicate combined profits of $31.9 billion so far in 2023, Global Witness, an international NGO, outlines in its new analysis that these two oil majors are fuelling America’s record-breaking heatwaves, as they are among “the world’s top carbon emitters.” The NGO claims that the two oil and gas players are producing over 1,700 tonnes of carbon every minute, which is seen as “a critical factor” in the extreme heat waves affecting millions across the United States.

Global Witness further elaborates that Chevron and ExxonMobil have jointly released an estimated 445 million tonnes of carbon during the first half of this year alone, based on oil and gas production forecasts by Rystad. These emissions, equivalent to the combined weight of nine Boeing 747s every minute, put the companies among the world’s top contributors to climate change, says the NGO.

Jonathan Noronha-Gant, Global Witness, Senior Campaigner, stated: “It’s both shocking and revealing that while millions of Americans suffer under the weight of record-breaking heatwaves, Chevron and Exxon continue to fan the flames of this climate crisis. Their combined profits of $31.9 billion are being made on the back of over 1,700 tonnes of carbon emissions every minute, a direct contributor to these deadly temperature spikes.

“If Chevron and Exxon were a nation, they’d be the sixth largest carbon polluter globally, outpacing countries like Germany, the UK, and France. Their pursuit of profit, despite the clear and present dangers of carbon emissions, is beyond irresponsible – it’s playing with fire on a global scale.

“As we experience unprecedented heatwaves, wildfires, and floods, we must demand greater accountability from these petroleum giants. Their actions are a stark reminder that profit cannot and should not come at the expense of our planet and the well-being of its inhabitants.”

Global Witness further notes that emissions from burning fossil fuels account for 90 per cent of the carbon released into the atmosphere and are believed to be a leading cause of devastating heatwaves, dangerous wildfires, and catastrophic floods, both in the U.S. and globally.