Exxon, Chevron target billions in share buybacks as cash flow surges

HOUSTON (Bloomberg) --Exxon Mobil Corp. and Chevron Corp. are plowing windfall profits into share buybacks as soaring energy prices boost their cash flow.

Exxon will revive repurchases for the first time since 2016. The company said Friday it plans to spend as much as $10 billion on repurchases starting next year. Chevron is considering an expansion of its buyback program after surging natural gas prices and oil-refining returns drove free cash flow to an all-time high in the last quarter. Shares of both companies climbed in pre-market trading.

The two largest U.S. oil and gas producers appear to be prioritizing shareholders rather than capital spending, despite energy crises in Europe and China and widespread concern about inflation and supplies of fossil fuels. The crucial question for executives at both companies when they appear on their respective conference calls with analysts later on Friday will be whether some of additional cash goes into boosting crude and gas production in 2022.

Exxon is expected to use the bulk of its extra cash flow to cover dividends and pay down debt, which peaked on a net basis at almost $70 billion at the end of 2020. All four of the company’s major rivals -- Chevron, TotalEnergies SE, Royal Dutch Shell Plc and BP Plc -- are using this year’s commodity rally to buy back shares as well. Shell and BP were forced to cut their dividends last year.

Recovery Mode

Exxon earned $1.58 a share during the third quarter, compared with the $1.56 average estimate among analysts in a Bloomberg survey. Net income, excluding some one-time gains and losses, reached $6.8 billion, the most since 2014. The company lost $650 million a year earlier.

Chevron’s quarterly profit excluding one-time items was $2.96 per share, which surpassed every analyst estimate compiled by Bloomberg. Earnings were so strong that the company’s net-debt-to-capital ratio has fallen below its target of 20% to 25%, a key threshold that could spur an increase in stock repurchases, Chief Financial Officer Pierre Breber said.

“We’re fast approaching a net-debt ratio where we could increase our buyback guidance range even further,” Breber said in an interview.

Chevron reduced its full-year capital-budget target to $12 billion to $13 billion from $14 billion, citing pandemic-related project deferrals and reduced costs in the Permian Basin.

The oil explorer has thus far avoided the attentions of activist investors like those that have targeted Exxon and, more recently, Shell. Chevron Chief Executive Officer Mike Wirth is betting on a strategy of enriching shareholders and increasing production, while at the same time addressing climate concerns by lowering a controversial measure of carbon emissions.

Major Turnaround

Free cash flow of $6.7 billion in the quarter allowed Chevron to fund a dividend that’s among the top 10 in the S&P 500 Index, and reduce debt. But the company bought back just $625 million of shares in the period, the mid-point of its targeted range.

Chevron shares rose as much as 2.3% in pre-market trading in New York while Exxon gained as much as 1.6%.

A big reason why oil supermajors are generating record cash flow is because of deep budget cuts made during the pandemic-driven oil-market collapse of last year. Chevron’s year-to-date spending was 22% lower than the year-earlier period.

But with record natural gas prices in Europe and Asia, and robust crude prices everywhere, there are growing incentives to increase investments in fossil fuels.