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Exxon, Chevron CEOs Face Wall Street With Returns in Tatters


By Kevin Crowley

(Bloomberg) Exxon Mobil Corp. and Chevron Corp. will face a grilling from Wall Street this week on one metric that used to be their badge of honor: returns on capital.Back in the early 2000s, the U.S. oil explorers were getting around 20%. Today, it’s less than half that, even with crude prices at a similar level.A decade of poor returns isn’t the only dark cloud hanging over both companies as they prepare to hold investor meetings in New York. Concerns over climate change and the future of fossil fuels loom large over the energy industry. More immediate still are worries about the impact of the coronavirus, which have pushed Brent oil down to $50 a barrel and sent Exxon’s shares to a 15-year low.

So far, the two U.S. energy giants have staked out diverging strategies. Exxon Chief Executive Office Darren Woods plans to spend his way to a better place through a $35 billion-a-year investment program, while Chevron boss Mike Wirth is trumpeting the virtues of shale oil from the Permian Basin, combined with cutting costs across the business.

Exxon and Chevron's returns have fallen markedly since the mid-2000s

These are “important meetings for both companies” said Doug Terreson, a New York-based analyst at Evercore ISI. “The question is whether they will stick with the status quo or pivot. The market does not seem to embrace the current plans.”

Here are five things to watch for:

Exxon Spending

Woods is pursuing a counter-cyclical strategy of building a series of large oil and gas projects across the world in the hope of being well positioned when prices eventually turn. But with the oil market still grappling with a glut — something OPEC+ will address in its meeting this week in Vienna — and the global gas market also mired in a slump, it’s hard to see when a recovery will come.

“This week will be keenly watched by investors for even the slightest shift in strategy with challenges in all areas of the business pressuring the company’s unique growth and outspend,” analysts at Tudor, Pickering, Holt & Co. said in a note Monday.

Woods hinted on Exxon’s last conference call that its plans may slow, pointing to liquefied natural gas export projects in Mozambique and Papua New Guinea that don’t yet have firm deadlines. Were Exxon to check the pace of its spending, “it would be well received by the market,” said Jennifer Rowland, an analyst at Edward Jones.

Chevron Shale

The Permian Basin in West Texas and New Mexico now accounts for 20% of Chevron’s budgeted capital expenditure of $20 billion. Production there has surged over the last two years, with fourth-quarter output up 36%. Chevron could raise its Permian target, which currently envisages 900,000 barrels of oil per day by 2023.

“The Permian acreage is a solid base, but we expect Chevron to take advantage of struggling independent producers to add low-cost resources,” Bloomberg Intelligence analysts Fernando Valle and Brett Gibbs said last week in a note.

Climate Change

BP Plc set the bar for Big Oil climate targets this year by pledging to be carbon neutral come 2050, not just including emissions from its own operations but for those from the oil and gas it produces as well. The U.S. supermajors have only committed to reducing greenhouse gas emissions from their own operations, and are under pressure to do more.

Environmental, social and governance “is unlikely to be a focus item but should have a more prominent role in the presentation” by Chevron on Tuesday, said Jason Gammel, a London-based analyst at Jefferies LLC.

Exxon Sales

Exxon’s dividend yield (and Chevron’s) has jumped in recent months, attracting attention. While Exxon sought to reassure investors during its fourth-quarter earnings conference call that the payout is safe, the fact remains that the company can’t fund it with free cash flow at current oil and gas prices, due to its massive spending. So it’s using debt and selling assets — it plans to divest $15 billion worth by 2021. Upping that target at its presentation on Thursday “would be a positive,” Rowland said.

Chevron Growth

While Exxon is being punished for spending too much on future growth, Chevron is spending too little, analysts say. Wirth is expected to provide more details of projects to raise production after 2023 while sticking to his mantra of financial discipline.



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