Big Oil Earnings Reveal Diverging Approaches to Output and Shareholder Payouts

HOUSTON/LONDON: The first-quarter earnings of Big Oil reveal a distinct divide in how companies are prepared to face the downturn caused by a drop in oil prices to a four-year low in April. Investors were concerned about whether firms would reduce share buybacks, as declining crude prices would result in less cash available to support the initiatives. Stock buybacks and dividend payments are crucial for attracting investor interest in the oil sector. U.S. oil company Exxon Mobil and UK firm Shell maintained their rate of stock repurchases. Their main competitors, U.S.-based Chevron and UK-based BP, announced plans to cut back on buybacks in the second quarter. The distinction highlights the position of each company within its business cycle.

Exxon has gained from abundant output from its oilfield in Guyana, the most significant offshore oil discovery in over a decade. A key participant in the leading U.S. oilfield, the Permian Basin, and in Guyana, Exxon ramped up production by 20 per cent compared to the previous year. Both sectors are very lucrative, and the firm is striving to lower its operating expenses, stated Exxon CEO Darren Woods. "In this unpredictable market, our shareholders can feel assured that we are prepared for this," Woods stated in the company’s first-quarter earnings report. This week, oil prices experienced their most significant monthly decline since 2021 as investors factored in the anticipated impact of U.S. President Donald Trump's trade policies on the global economy and related fuel demand. Exxon's ratio of net debt to capital stood at 7 per cent. According to Kim Fustier, head of European oil and gas research at HSBC, it was the sole integrated oil company that did not raise net debt throughout the quarter.

Big Oil Split on Buybacks

Chevron's oil and gas output in the first quarter remained stable compared to last year, as increases in Kazakhstan and the Permian were counterbalanced by production losses from sold assets. Earlier this year, the firm revealed it planned to reduce its workforce by as much as 20 per cent to streamline operations and save up to $3 billion in expenses. Chevron is seeking to invest in the Guyana play by acquiring one of Exxon's minor partners in the project, Hess. Exxon is currently in arbitration regarding that agreement and asserts it has the right of first refusal for Hess' share in the field. Exxon bought back $4.8 billion in shares in the first quarter, positioning itself to reach its yearly goal of $20 billion. Chevron announced it would cut buybacks to between $2 billion and $3.5 billion in the ongoing quarter, a decrease from $3.9 billion from January to March, attributing this change to market conditions.

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"Exxon's affordable production allowed it to maintain its buyback strategy, while Chevron scaled back due to the impact of declining oil prices," stated Jake Behan, head of capital markets at financial products company Direxion. In Europe, Shell's earnings for the first quarter surpassed analysts' forecasts. The firm announced it intends to repurchase $3.5 billion in shares within the next three months, marking the 14th straight quarter of a buyback initiative totalling at least $3 billion. BP fell short of earnings forecasts with a 48 per cent drop in profit to $1.4 billion and reduced its share buyback plan from approximately $1.8 billion to $750 million per quarter. Following the unsatisfactory outcomes, BP might fall short of consensus projections for second-quarter earnings by 20 per cent, according to Biraj Borkhataria, an RBC Capital Markets analyst, in a note.

"The blend of lower free cash flow, increased leverage, and inconsistent execution makes us more wary about the company compared to its competitors," he stated. The British oil giant is currently undergoing a strategy shift back to oil and gas following an unsuccessful effort to pursue a low-carbon energy business model more vigorously than its competitors. Before the downturn, BP had lagged behind its largest competitors, positioning it as a possible acquisition candidate. Shell's CEO, Wael Sawan, mentioned on Friday that he would prefer to repurchase a larger amount of his company's shares instead of making an offer for BP. Shell maintained its investment budget in the range of $20 billion to $22 billion for the year, whereas BP announced it would reduce its spending by $500 million, resulting in a budget of $14.5 billion. BP also noted that it might divest additional assets, raising its forecast for asset sales this year to a range of $3 billion to $4 billion, up from the previously estimated $3 billion.