Exxon Mobil corp. and Chevron Corp capped Big Oil’s earnings season by revealing successful increases in fossil fuel output, as OPEC and its allies prepare to increase crude supplies on the global market.
The gains in U.S. oil majors were fueled by pumping record amounts of crude from the Permian Basin, which continues to surprise analysts with year-over-year growth and efficiency gains. Exxon’s oil and gas production boosted by $60 billion in acquisitions Pioneering Natural Resources Co., grew 24% from a year earlier, and Chevron increased production by 7%.
US companies were not alone. the shell Plc and BP Plc raised production by 4% and 2% respectively, despite more aggressive net zero targets than its American rivals.
It all comes with a weakening outlook for oil prices, which have already fallen by around 12% in the past six months due to weak demand from China, the world’s biggest crude importer. They could fall even further if the Organization of the Petroleum Exporting Countries continues its plan to restore previously cut production.
The moment stands in stark contrast to just a few years ago, when executives were working to reduce capital spending during the pandemic and face pressure from the environmental, social and government movements to invest in low-carbon alternatives to fossil fuels. The success of the former and the failure of the latter have coalesced around a common industrial strategy: oil and gas that is cheap enough to withstand any energy transition scenario.
“Exxon and Chevron are sticking to their core oil and gas strategy while expanding into some of the best assets around the world,” said Nick Hummel, a Saint Louis-based analyst at Edward D. Jones & Co. “The near-term outlook. Indeed, oil and gas are feeling soft, mainly because OPEC is ready to bring more barrels to the market.”
Read more: The most productive industry in the US is written by Wall Street
Exxon, which lost an activist battle against ESG’s No. 1 engine in 2021, is a prime example of a shift in strategy.
Acquisitions, divestitures, cost cuts and efficiency gains have “doubled” the oil giant’s profit margins per barrel since 2019, even at constant oil prices, Chief Financial Officer Kathy Mikells said in an interview.
And meanwhile, Chevron is pumping 27% more oil and gas than a decade ago, despite cutting capital expenditures in half. Much of that was due to the company spending heavily on its current Australian gas projects, but it has also driven efficiency gains and a pivot to the Permian. Chevron has doubled production in the basin over the past five years and is now returning record amounts of cash to shareholders.
“We’re getting more efficient in everything we’re doing,” Chevron CEO Mike Wirth said in an interview. “We’re getting more for every dollar we spend.”
U.S. production growth — currently about 50% higher than Saudi Arabia’s — is helping OPEC keep millions of barrels off the market. These barrels, combined with fresh supplies from Guyana, Brazil and elsewhere, could mean 5 million barrels a day of production capacity “not currently in production will be available in 2025,” Macquarie analysts said in a report. They said this against the backdrop of “relatively weak” demand growth.
The bank sees Brent crude falling below $70 a barrel, from around $73 today, barring any major geopolitical events.
Read more: Andurand revives oil bets amid heightened Middle East supply risks
Falling prices affect Big Oil’s ability to pay dividends and buy back stock. BP fell this week after signaling it may cut purchases next year amid lower oil prices. But Exxon, Chevron and Shell remain confident they will weather the storm.
Exxon’s projects in Guyana and the Permian, which currently account for a quarter of total production, can pump crude for less than $35 a barrel, meaning they should remain profitable in a potential downturn.
“The fundamental transformation of our business has put us on a very good footing in any market environment, but especially in a softening market environment,” Mikells said.
Join the brightest minds and boldest leaders in business at the Fortune Global Forum, which will convene on November 11th and 12th in New York. Thought-provoking sessions and off-the-record discussions include Fortune 500 CEOs, former cabinet members and global ambassadors, and 7-time World Champion Tom Brady, among many others.
See the full agenda hereor request your invitation.
