(Bloomberg) -- Exxon Mobil Corp. enjoyed an immediate surge from its $63 billion acquisition of Pioneer Natural Resources Co. by posting record oil production and beating earnings estimates.
Exxon earned $2.14 a share during the second quarter, 11 cents higher than the Bloomberg Consensus. The Pioneer takeover closed in early May, helping lift Exxon’s overall production by 15% from the first quarter and setting the stage for daily output to average more than 4 million barrels this year.
Arch-rival Chevron Corp. missed its earnings estimates on weaker refining and an outage at its Australian liquefied natural gas operations, demonstrating how much the company needs its pending $53 billion acquisition of Hess Corp., which won’t close until mid-2025 at the earliest. Chevron dropped 2.7%, thanks in part to a plunge in oil prices. Exxon fell 0.8%, making it the best daily performer in the S&P 500 Energy Index.
The contrasting results demonstrate the value of acquisitions in a sector that has seen $240 billion of deals over the past year. Low valuations of oil and gas stocks, in part due to the energy transition, has provided an opportunity for bigger players to use their stock to pick up rivals cheaply and grow production without adding fresh supplies to global markets. Chevron’s attempt to buy Hess is being held by an arbitration case filed by Exxon, which claims to have a right-of-first-refusal over its key Guyana asset.
Exxon’s results provide assurance to investors that the oil giant is well-placed to execute a 15% ramp-up in share buybacks to $20 billion a year even despite bearish crude-market signals. The company is the best-performing major oil stock this year. It’s producing more oil than at any time since its historic Mobil merger in 1999.
“We once again set production records from our advantaged assets in Guyana and the Permian,” Exxon Chief Executive Officer Darren Woods said on a call with analysts.
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Oil explorers ramped up cash returns to shareholders as commodity prices soared in 2022 and 2023 and had plenty of cash left over to invest in low-carbon alternatives. But with many renewable bets fizzling, oil executives have been forced to refocus much of their attention on traditional fossil-fuel projects that can generate long-term cash flows.
Exxon was an exception, having never turned its back on fossil fuels. It’s been able to increase production and returns, particularly through fast-growing projects in Guyana and the Permian Basin.
Production in Guyana and the Permian Basin reached all-time highs during the second quarter. Exxon is now the biggest producer in the Permian after closing the Pioneer transaction, its biggest deal since buying Mobil.
“It gives us a really big boost,” Chief Financial Officer Kathy Mikells said during an interview.
Exxon plans to increase annual capital spending by 12% to $28 billion this year as a result of the combination with Pioneer. The boost is “consistent” with what Pioneer was previously spending, Mikells said. Cost savings through the integration process have come in ahead of expectations, she added.
Chevron earned $2.55 a share in the second quarter, less than the $2.93 median estimate among analysts surveyed by Bloomberg. Aside from the headline miss, the company posted higher-than-expected production from the Permian Basin and said its major expansion project at Tengiz in Kazakhstan is on track. Production was up 11% from a year earlier.
“Operational performance continues to improve” said Lloyd Byrne of Jefferies Financial Group Inc.
Chevron also announced the retirement of three vice presidents — Nigel Hearne of upstream, Colin Parfitt of midstream and Rhonda Morris of human resources — all of whom are below the company’s usual retirement age. Hearne was replaced by Vice Chairman Mark Nelson, a long-time Wirth ally.
(Adds details from Chevron earnings starting in the third paragraph.)
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