What’s News in Earnings: Oil Companies Look Forward to a Windfall

0:00Benoît Morenne:Hey, this is Alex from What's News. Thanks so much for being a listener of the show. If you're looking for more insights and tools to understand the latest headlines, consider becoming a subscriber to The Wall Street Journal. Visit subscribe.wsj.com slash what's news to subscribe now.

0:23Benoît Morenne:Hey, listeners, it's Tuesday, May 5th. I'm Benoît Moren for The Wall Street Journal. And this is What's News in Earnings, or look at some of the biggest themes standing out this earnings season. And, well, it's been a roller coaster of a quarter for oil companies. They entered it concerned about an oversupply of oil in global markets. But the Iran war and the closure of the Strait of Hormuz mean the world is now short crude and other petroleum products. Oil prices have jumped, and Exxon and Chevron both beat Wall Street's expectations. But the big picture is murky. The Trump administration and Iran are fighting for control of this trade, and American producers don't know how and when this ends.

1:08Benoît Morenne:And because they don't know how sustainable the rising prices will be, they're not ready to pump much more oil than they are, at least for now.

1:19Benoît Morenne:We're joined now by Wall Street Journal energy reporter Colin Eaton, who covers big oil. So, Colin, oil prices surged this quarter on the back of the Iran war. Did that translate into a windfall for Exxon, Chevron, and the other majors? So, it definitely padded their cash position. Exxon, for example, the cash flow from its operations in places like West Texas and Guyana, that all added up to almost$14 billion. dollars. That's higher than the company's quarterly average for the past three years. And higher oil and gas prices definitely will keep boosting their profits as long as the straight of Hormuz is blocked.

2:06And for a good while after it reopens, it's going to take months for oil markets to settle down. And while that's happening, these two companies are going to continue to collect higher revenue. But in the first quarter, it got a little complicated. Exxon and Chevron both had to take on paper losses. This is related to the way they do their accounting on physical trades in the market. This kind of shaved off a couple of billion dollars from their quarterly net income. So suffice to say, the companies made some trades that have yet to close on the physical market. But when those unwind, they're going to further pad the company's bottom lines.

2:55So yeah, they're expected to make a ton of money this year. That's why their shares are near all-time highs.

3:00Benoît Morenne:So what did the company say about how they plan to use all this cash? Could they drill more? You'd think so, right? But since the pandemic, the oil pumping industry, As we know, it has been a lot slower to react to these sort of big swings in prices. They're a bit more conservative now than they were a decade ago during the shale boom. These days, they're focused on dividends and share repurchases. So let's look at the numbers. Since 2022, Exxon, Chevron, and another big U.S. oil company, ConocoPhillips, they've spent$301 billion on dividends and share repurchases or buybacks. By comparison, they spent about$222 billion reinvesting in projects and in the oil patch generally.

3:45So you can see that where their priorities have shifted. This time is no different. They're sort of sticking to their capital expenditure plans that they set out months before the Iran conflict began.

3:58Benoît Morenne:So those big old CEOs, how do they see the next few months playing out for global energy markets and perhaps more importantly for U.S. consumers? Well, it's pretty grim. I'm not going to be taking any cross-country road trips this summer. So yesterday, the national average for a gallon of regular gasoline reached$4.45. But yeah, the executive warned that we haven't seen the worst of the supply crunch in physical markets. As the straight is snarled, the longer it's snarled, ultimately, it's going to translate into higher prices at the pump. Chevron CEO Mike Wirth, he said the energy market is going to be radically changed by the aftermath of the closure of the straight-up Hormuz.

4:44In a world that is getting very tight on products, we're going to keep our assets very full and be able to provide a significant supply into markets that, you know, dearly need it. And both Exxon and Chevron, they're churning out as much gasoline and jet fuel and other products as they can right now. Chevron's refineries in the U.S., they said were producing record amounts of fuel. Exxon has been redirecting tankers from the Gulf Coast to Asia for fuel buyers with more immediate needs.

5:18Benoît Morenne:And that was What's News in earnings. Today's show was produced by Anthony Bansi with supervising producer Tali Arbel. Additional sound courtesy of S &P Global Market Intelligence. Later today, we'll have the PM edition of What's News ad for you as usual. and we'll be back later this earnings season, diving into another industry. Until then, I'm Benoit Moran. Have a great day.

5:48Benoît Morenne:Hey, this is Telus Demos. And I'm Miriam Gottfried. We're reporters at The Wall Street Journal and the hosts of WSJ's Take on the Week. It's a weekly show that gives listeners a leg up in the world of markets and investing. From the Fed's moves to market bubbles, we dive into the biggest deals, key players, and business news ahead. If you're looking for more news and tools that you can use to help navigate the markets, consider becoming a subscriber to The Wall Street Journal. Visit subscribe.wsj.com slash takeontheweek to subscribe now.