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It was speculated to be a blockbuster quarter for vitality names because of the continued surge in oil costs and it didn’t disappoint: earlier at present Chevron reported stellar Q3 earnings, beating on the highest and backside line, with EPS of $2.96 (beating expectations of $2.21), the best since Q1 2013 on improved market situations, main the vitality big to weigh extra share buybacks whereas reining in spending after surging pure fuel costs and oil-refining returns drove the U.S. supermajor’s free money circulate to an all-time excessive. Then moments in the past, Exxon Mobil additionally posted its greatest revenue in seven years with Free Money Movement beating estimates and surprisingly pledging to spend as a lot as $10 billion on share buybacks over the following 12-24 months.
Trying on the press launch, Exxon earned an adjusted $1.58 a share in the course of the third quarter, simply above the $1.56 common estimate whereas adjusted internet revenue reached $6.8 billion, probably the most since 2014. One 12 months in the past, the corporate misplaced $650 million amid crashing oil costs.
Here’s what Exxon reported for Q3:
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Adjusted EPS $1.58, beating the estimate $1.56 (GAAP EPS $1.57 vs. loss/share 15.00c y/y).
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Upstream earnings $3.95 billion vs. loss $383.0 million y/y, lacking the estimate $4.47 billion
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Downstream earnings $1.26 billion vs. loss $231.0 million y/y, beating the estimate $830.1 million
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Chemical earnings $2.14 billion vs. $661 million y/y, beating the estimate $2.11 billion
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Chemical prime product gross sales 6,672 kt, +0.7% y/y
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Downstream petroleum product gross sales 5,327 kbd, +6.1% y/y
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Refinery throughput 4,051 mb/d, +7.8% y/y
Q3 highlights:
Evaluating Q3 to Q2 earnings, the corporate highlighted a $2.1 billion enchancment in earnings:
Manufacturing:
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Manufacturing 3,665 mboe/d, -0.2% y/y, estimate 3,644
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Manufacturing 8,110 mmcfe/d, -2.5% y/y, estimate 8,345
Money Movement:
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Money circulate from operations $12.09 billion vs. $4.39 billion y/y, beating the estimate $11.22 billion
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Money circulate from operations and asset gross sales $12.11 billion vs. $4.49 billion y/y
When it comes to money use, the corporate spent $3.1BN on PP&E, with the steadiness spent on debt paydowns ($3.8BN) as the corporate continued to strengthen its steadiness sheet, and dividends ($3.7BN , bringing the YTD whole to $11.2BN).
CapEx:
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Capital expenditure $3.85 billion, -6.8% y/y, estimate $3.82 billion (vary $3.47 billion to $4.50 billion)
A visible abstract:
As proven within the following Y/Y bridge, a majority of the good points from Q3 2020 got here from Upstream value will increase, with chemical and downstream margin enhancements contributing the steadiness:
Commentary and context:
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On Observe to Obtain ’25 Emission-Discount Plan by Yr Finish
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Sees 4x Improve in Low-Carbon Spend
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Sees Greater Upstream Volumes in 4Q
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“All three of our core companies generated constructive earnings in the course of the quarter, with sturdy operations and price management, in addition to elevated realizations and improved demand for fuels,” mentioned Darren Woods, chairman and chief government officer
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Woords: “Subsequent month, the board will finalize our company plan that helps funding in industry-advantaged, high-return initiatives, and a rising listing of strategic and financially accretive lower-carbon enterprise alternatives… count on to extend the extent of spend in lower-emission vitality options by 4 occasions over the prior plan, including initiatives with sturdy returns in addition to seeding some growth funding in massive hub initiatives that require additional coverage help.”
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2021 capital program anticipated to be close to low finish of $16 billion to $19 billion vary, so no instant surge in capital spending which is able to imply continued excessive costs as US provide fails to rebound.
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In 4Q, board will formally approve company plan, with capital spending anticipated in vary of $20 billion to $25 billion yearly
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Exxon expects cumulative low- carbon investments to be about $15 billion from 2022 by 2027
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Sees greater vitality prices impacting Europe & Asia refined- product costs in 4Q
However maybe what was probably the most stunning facet of Exxon’s launch is the corporate’s revival inventory buybacks repurchases for the primary time since 2016. The corporate mentioned it plans to spend as a lot as $10 billion on repurchases beginning subsequent 12 months.
Following a surge in activist investor curiosity, Exxon and Chevron – the 2 largest U.S. oil and fuel producers – are lastly prioritizing shareholders fairly than capital spending, regardless of vitality crises in Europe and China and widespread concern about inflation and provides of fossil fuels. The essential query for executives at each firms after they seem on their respective convention calls with analysts afterward Friday might be whether or not a few of more money goes into boosting crude and fuel manufacturing in 2022.
Exxon is anticipated to make use of the majority of its additional money circulate to cowl dividends and pay down debt, which peaked on a internet foundation at virtually $70 billion on the finish of 2020. All 4 of the corporate’s main rivals – Chevron, TotalEnergies SE, Royal Dutch Shell Plc and BP Plc – are utilizing this 12 months’s commodity rally to purchase again shares as effectively. Shell and BP have been compelled to chop their dividends final 12 months.
A giant cause why each Exxon and Chevron oil producing report money circulate is due to deep finances cuts made in the course of the pandemic-driven oil-market collapse of final 12 months. Chevron’s year-to-date spending was 22% decrease than the year-earlier interval. However with report pure fuel costs in Europe and Asia, and sturdy crude costs all over the place, there are rising incentives to extend investments in fossil fuels.
Trying forward, the corporate gave an optimistic preview of the fourth quarter, anticipating strong enchancment throughout its 3 key segments, in addition to continued company “streamlining”
And assuming $60 oil, the corporate expects earnings to hit $30BN by 2025, almost triple the 2019 degree, with cost-reductions anticipated to exceed $6BN by 2023 vs 2019.
Lastly, with US oil E&Ps below the microscope of the web zero foyer, the corporate pledged $15BN in decrease carbon investments from 2022 to 2027. For sure, this cash is taken away from increasing its legacy enterprise which is why the worth of commodities will maintain rising.
Following the strong earnings, and the shock $10BN buyback announcement, the inventory value jumped within the pre-market rising to its June highs, and is more likely to proceed its ascent greater as XOM’s common score is ‘Maintain’, and the common sellside goal value is simply $68.52. Count on a burst of upgrades within the coming days.
By Tom Kool for Oilprice.com
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