By Jinjoo Lee
ExxonMobil is nowhere close to holding the kind of market power its Standard Oil ancestor enjoyed back in the day, but it certainly is cementing its lead over supermajor peers.
On Friday, Exxon reported that first-quarter earnings were down 28% compared with a year earlier, driven by lower natural gas prices and refining margins. Earnings were 6.4% lower than what analysts polled by Visible Alpha had penciled in, but largely due to one-time impacts such as tax and inventory adjustments. The underlying business remains a cash gusher: Exxon generated about $10 billion of free cash flow during the quarter -- 21% higher than analyst expectations.
Exxon's shares retreated Friday morning following its earnings call on Friday morning, but they are still up 18% year to date, outpacing the increase in Brent crude prices by about 3.6 percentage points and surpassing the gains seen by its competitors by a substantial margin. Exxon's market capitalization now dwarfs closest rival Chevron's by $161 billion. For perspective, that outperformance is nearly the entire value of TotalEnergies'. For a brief period earlier this week, Exxon's market capitalization even surpassed that of Tesla -- a company whose products are supposed to help put it out of business.
To Exxon's credit, its consistent capital spending since 2019 -- even during the depths of the pandemic -- appears to be paying off. Exxon had $94 billion in capital expenditures from 2019 to 2023, about 67% more than what Chevron spent over that time. In Guyana, where a lot of that spending was directed, all of its three projects are producing above their initial design plans and achieved record gross production in the first quarter. In the Permian Basin, another area Exxon plowed money into, it has more than doubled production volume since 2019. Exxon's execution has arguably looked better than that of Chevron, which had run into delays and cost overruns on its joint-venture expansion project in Kazakhstan. Chevron also missed its production growth target last year.
Exxon is well ahead of Chevron in its land grab: Its acquisition of Permian producer Pioneer Natural Resources is still expected to close in the second quarter. It could widen its lead even more if its challenge against an element of Chevron's acquisition of Hess prevails. Exxon has pushed back on the transfer of Hess' Guyana oil project stake, asserting that Exxon -- as a joint venture partner in the project -- had the right to pre-empt Chevron's bid on the project stake. Exxon filed for arbitration in March and the company's chief financial officer, Kathy Mikells, said in an interview with The Wall Street Journal on Friday that both companies have selected arbitrators, with a third yet to be appointed.
And with $33.3 billion of cash on its balance sheet, Exxon still has the option to increase cash returns or pursue more acquisitions. Its net debt to capital ratio is at 3%, the lowest in more than a decade.
Despite the stock's rally so far this year, Exxon's valuation premium over Chevron has actually narrowed. Its enterprise value as a multiple of forward-12-month earnings before interest, taxes, depreciation and amortization is about 6% higher than Chevron's. Over the last five years, that averaged 8%.
Good news on arbitration could supercharge Exxon's lead over its rival.
Write to Jinjoo Lee at jinjoo.lee@wsj.com
(END) Dow Jones Newswires
April 26, 2024 10:33 ET (14:33 GMT)
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