US oil giants Exxon and Chevron report a solid increase in earnings

Two of the largest oil companies in the US, Exxon Mobil Corp and Chevron Corp, have been making solid revenues from their booming oil and gas operations. However, the two companies are now conflicted on their next steps to sustain operations.

Exxon and Chevron conflicted over the next steps

Exxon and Chevron released their results for the first quarter. The results have topped Wall Street estimates, with the companies reporting a significant increase in earnings. The net earnings at Exxon reached $11.4 billion, while Chevron’s earnings reached $6.6 billion.

According to analysts, the financial reports posted by the two would continue to grow stronger during the year. The two companies have settled the debts incurred during the COVID pandemic.

Exxon and Chevron have strong balance sheets and spend significantly below their past levels on development projects and new exploration endeavors. The financial performance indicates that the two oil companies have had one of their best quarters.

The two oil firms also run low net debt-to-capital ratios of around 4%. This number is significantly lower than the double-digit ratios reported a few years ago. The companies have also reduced their spending on new projects, with the amount now being less than half of the total income.

The low net debt-to-capital ratios have resulted in large cash reserves, far exceeding what these companies need for their routine operations. After posting these solid financial results, the companies are now conflicted about what to do next.

Wall Street is currently pushing for higher share buybacks and dividends. Analysts are concerned that an influx of cash in the market could significantly increase big-dollar acquisitions.

Oil companies are well-positioned

The CEO of Exxon, Darren Woods, commented on the development saying that he was happy to see an increase in cash balances, signaling that the company was in a good position in case of a cycle downturn.

Woods further said there was an increased likelihood that the cash balances would continue to increase when the markets are at the peak end of the cycle. The executive also noted a high demand for commodities and that it was not opposed to acquisition in case a deal resulted in higher returns for the shareholders.

The executive noted that the deal going forward would be that what Exxon brought to the table increased what either company would do independently. Exxon had $32.6 billion by the end of the first quarter, while Chevron had $15.7 billion. The amount was around triple what the company needed to support operations.

Chevron has bid on its rivals two times, and during the 2020 market downturn, it landed Noble Corp for $4.1 billion. The company expects to reduce some of its cash reserves, according to its Finance Chief, Pierre Breber.

Breber said the company was not planning to hold more than $15 billion in cash in its balance sheet. He also said that the company’s influx of cash on the books was economically inefficient.