Exxon and Chevron Stalk More Shale Deals as Profits Dip

Exxon Mobil and Chevron collectively banked nearly $14 billion in second-quarter profits Friday, down from last year’s record-breaking levels but adding to their war chests as they eye acquisitions in the oil patch. 

Exxon said it earned $7.9 billion in the second quarter, extending its run of strong quarters though its profit was down from the company’s $17.9 billion haul in the same time last year, when Russia’s invasion of Ukraine skyrocketed energy prices. Chevron said it collected $6 billion in profit, dropping from a quarterly record of $11.6 billion in the same period last year.

The profits follow multibillion-dollar deals by both companies in recent months, and the oil giants have said they aren’t done shopping.

Exxon scooped up pipeline operator and oil producer Denbury for $4.9 billion in July and Chevron agreed in May to buy shale driller PDC Energy for $6.3 billion. Both transactions were all-stock, low-premium deals that showed the companies could still make big bets despite a push by Wall Street for austerity. 

Kathy Mikells, Exxon’s chief financial officer, said in an interview that the company searches for unique assets that allow it to leverage its large scale and skills bringing products to market. 

“We’re constantly looking for something where the equation would be one-plus-one equals three,” she said. 

Chevron CEO Mike Wirth said in a recent TV interview his company is open to more deals following the PDC acquisition.

In picking off two smaller companies, Exxon and Chevron revealed some of their strategy to investors who have asked how they plan to grow as they sit on historically large piles of cash in the wake of last year’s energy price hikes. 

Exxon and others have eyed potential deals in the Permian basin of West Texas and New Mexico, the most active U.S. oil field. In April, The Wall Street Journal reported that Exxon had held preliminary talks with Pioneer Natural Resources,

Conditions are ripe for a deal frenzy in the oil patch this year. The shale industry has shifted from the rapid growth it pursued for more than a decade to a mature business underpinned by fiscal restraint and hefty shareholder payouts. Drilling for new oil discoveries has fallen out of favor with investors, leaving many companies with few options other than to acquire rivals to extend their runway. 

The continued run of profitable quarters has helped Exxon and Chevron improve their balance sheets while increasing dividends and buybacks, potentially giving them more leeway with shareholders to pursue deals. Analysts and investors expect Exxon and Chevron to eventually play a big role in scooping up the dozens of smaller shale companies that constitute the industry.

Both companies’ profits fell modestly from the previous quarter, when Exxon reported $11.4 billion in profits and Chevron posted $6.6 billion. Exxon’s profit came in below analysts’ expectations of $8.3 billion, according to FactSet. It attributed most of the $3.6 billion decline from the first quarter to lower natural-gas prices and thinner refining margins. 

“The work we’ve been doing to improve our underlying profitability is reflected in our second-quarter results, which doubled from what we earned in a comparable industry commodity price environment just five years ago,” Exxon CEO Darren Woods said.

Prices for crude, natural gas and fuels have fallen since last summer, when the national average for U.S. gasoline hit a historically high mark and fuel-making margins reached the widest levels on record. 

Despite falling off their highs, commodity prices have remained elevated and are starting to climb again. U.S. oil prices settled above $80 a barrel on Thursday, the highest level since mid-April. Europe’s energy crunch has made shipping commodities from U.S. ports more profitable, as well. All of that has bolstered the companies’ bottom line.

Exxon said it had $29.6 billion in cash at the end of the three-month period, compared with its record high of $32.7 billion at the end of March. The company expects a recent series of cost cuts will add up to $9 billion in savings by the end of this year, compared with spending in 2019. 

Both companies also showered investors in cash. Exxon spent $8 billion on shareholder distributions via dividends and share buybacks in the quarter; Chevron spent a company record of $7.2 billion.

Emboldened by their strong results, the companies have begun to pursue growth in certain parts of their business, a reversal from pandemic-induced retrenchment.

Dan Ammann, president of Exxon’s low-carbon solutions business, said in an interview the company would consider accelerating its build-out of the relatively new unit via an acquisition if it found other compelling targets. 

Exxon formed the low-carbon unit in 2021 to primarily invest in climate-friendly technologies, such as carbon capture, that it hopes will help curb emissions from the company’s fossil-fuels business and other industrial operations. It is planning to spend $7 billion through 2027 growing the business alongside $10 billion on curbing its own emissions. 

Exxon also recently purchased drilling rights in a lithium-rich part of South Arkansas, seeking to extract the mineral, and has plans to build one of the world’s largest lithium processing facilities nearby, the Journal reported. 

Chevron also created its own venture, known as Chevron New Energies, that aims to invest $10 billion through 2028 in carbon capture, hydrogen, renewable fuels and other technologies.    

But investors say the companies’ bigger desire is to buy more assets in the oil patch. Both are focused on the Permian, where both Exxon and Chevron have carved out vast strongholds and aspire to pump about as much oil as comes from the Bakken Shale of North Dakota. 

Woods, Exxon’s CEO, has told investors the company is working on technology that will boost the amount of oil it can wring from a well in the Permian, as it seeks to grow production there to 1 million barrels a day by 2027. 

“We’ll leverage that to the [fullest] extent that we can,” he said in a previous conference call. 

Write to Collin Eaton at [email protected]