Exxon speaks up as Chevron catches up

Exxon Mobil Corp. wants you to know it is serious. On February 1, Darren Woods became the first CEO of the famously aloof oil major to grace an earnings call in 15 years.
Fortunately for him, he had some decent results to talk about. After several quarters of decline, year over year, Exxon’s production finally ticked up in the last few months of 2018. Earnings of $1.41 a share handily beat the consensus forecast of $1.08. They still do even after stripping out about 20 cents’ worth of one-off benefits. Cash flow from operations for the year, a cool $36 billion, more than covered rising capital expenditure of almost $21 billion as well as dividends of almost $14 billion. Yet Woods didn’t show up just because the numbers were good. He was there to assuage concerns about Exxon’s slipping crown.
As usual, compatriot and rival Chevron Corp. announced results the same morning. One of the more striking sets of numbers was the two companies’ upstream earnings: Chevron’s full-year figure of $13.3 billion wasn’t too far off Exxon’s $14.1 billion, despite the latter’s production being 18 percent higher. While Chevron’s earnings per barrel of oil equivalent collapsed into negative territory during the crash, it has since caught up and surpassed its bigger rival.
On a range of metrics, Chevron has been catching up. A decade ago, its production and earnings were 69% and 54% as high as Exxon’s, respectively. In 2018, those figures were 76% and 71% – and Exxon’s benefit from a large chemicals business.
Where this really comes through is in what investors care most about in the oil sector these days: cash. Chevron’s free cash flow surpassed Exxon’s last year for the first time in at least a decade. More importantly, Chevron’s free cash flow after dividends of $8.3 billion in 2018 was five times the size of Exxon’s.
Both companies have moved aggressively in US shale, previously the preserve of their smaller rivals. Both touted a near doubling in their production from the Permian basin in the fourth quarter compared with a year earlier. Here again, though, the numbers show Exxon in an uncharacteristic runner-up position. Earnings from its US upstream business in 2018 of $2 billion were more than a third below Chevron’s, despite Exxon’s output being 24 percent higher.
On any number of measures, Exxon still trades at a premium, albeit less than it once was. For example, its price/book ratio of 1.52 times is 12 percent higher than Chevron’s. Just five years ago, the gap was 62 percent. Woods is working hard to restore those glory days. The difficulty is that, based on current performance, justifying even today’s premium requires some serious marketing.
—Bloomberg

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.