Exxon, Chevron hit by Q1 market swings, but still post big revenues

By Sabrina Valle

(Reuters) – The two largest U.S. oil companies on Friday posted big revenues in the first quarter, but both Exxon Mobil Corp and Chevron Corp found themselves tripped up by market fluctuations, though those stand to dissipate in coming months.

To be sure, Exxon and Chevron earned $5.5 billion and $6.3, respectively, and the former dusted off its old reputation as the poster child for share repurchases by tripling expected buybacks through 2023 to $30 billion. Chevron got in on that as well, boosting buybacks to their most in more than a year.

However, Exxon said its revenues were $1.3 billion lower than they could have been due in part to derivative positions and “negative timing” issues, while Chevron’s global refining business was hit by lower margins and foreign currency swings.

“Timing and derivative effects impacted XOM’s results heavily this quarter. We think investors will look through this noise and focus on underlying earnings, which actually looked extremely strong this quarter and will only look better into next quarter,” RBC Capital Markets analyst Biraj Borkhataria said.

The Brent crude benchmark traded in a near-$87 a barrel range in the quarter, making it the most volatile quarter in the last 30 years, other than in mid-2020, when prices slumped as the coronavirus pandemic broke out.

Both companies are also facing higher inflation costs and labor shortages in the United States.

“The tightness that we are seeing in the Permian, obviously, that’s starting to impact us as well. So we are seeing inflationary pressures,” Exxon Chief Executive Darren Woods said in a webcast to analysts.

Wall Street pronounced itself less than impressed with the quarter, pointing out that cash flow levels for both companies and the derivative-related losses were unexpected. Analysts at Jefferies even said Chevron’s figures were the “most underwhelming” for the sector so far.

Whether that will matter in the long run is another question. The average price of crude in the first quarter was $114 per barrel, and in the second quarter so far, was still high at $109. In addition, fuel markets are being squeezed even more now following heavy sanctions on Russia after it invaded Ukraine.

Woods said the negative effects that obscured first quarter earnings will dissipate in the current quarter.

“The impact of weather on the upstream volumes and derivatives and timing impacts in the downstream obscured a strong underlying performance,” he said.

By midday, Exxon shares were down 1.1% at $86.27, while Chevron fell 2% to $158.65.

NO CHANGE IN DRILLING STRATEGY

These hiccups are not likely to tamp down criticism of the oil companies from lawmakers in Washington, either.

Congressional Democrats on Thursday accused big oil companies of profiteering as consumers struggle with near-record gasoline prices and a surprising surge in natural gas futures, which will translate to higher operating costs for big utilities ramping up activity for the summer.

The White House has been pressing the oil companies to boost output, but Exxon’s Woods said on its earnings call that it did not plan on changing its drilling strategy based on what it said was “high short term demand.”

Fuel demand worldwide has rebounded roughly to pre-pandemic levels, and the insecurity around availability of energy supply drove market volatility throughout the last several months. At one point, Brent crude was closing in on $140 on the expectation that Russia could see much of its 4-5 million barrels in daily crude exports interrupted.

Subsequent announcements of big reserve releases by the United States and other big consumers pushed that benchmark as low as $97 later in March.

“It can take two, four weeks for price realization, and there is intense market volatility now,” said Anish Kapadia, energy director at research firm Palissy Advisors.

Timing issues, along with a $400 million impact from derivatives positions that have not been settled, hit Exxon’s results.

Chevron, meanwhile, posted a $155 million loss in its international refining operations, due to higher expenses, lower margins on sales, and a $36 million swing in foreign currency impacts during the period.

(Reporting By Sabrina Valle; additional reporting by Arathy Somasekhar, Shariq Khan and Arunima Kumar; writing by David Gaffen; Editing by Marguerita Choy)