#How Did Oil Prices Impact Major US Oil Companies?
In the first quarter, we witnessed a significant surge in oil prices, yet two major US oil companies, Exxon Mobil and Chevron, reported a decline in earnings compared to the same period last year. Exxon's net income decreased by 45% to $4.2 billion from $7.7 billion in the previous year, while Chevron experienced a 36% drop, reporting $2.2 billion in net income down from $3.5 billion.
This decrease in earnings occurred despite Brent crude prices rising dramatically from $61 to $118 per barrel, marking the largest quarterly increase since 1988. The escalation was significantly influenced by US and Israeli strikes on Iran, leading to the closure of the Strait of Hormuz, which is crucial as it facilitates about 20% of global oil transit. At the height of this disruption, an estimated 10 to 13 million barrels per day were lost, equating to over 500 million barrels in just 50 days.
Both Exxon and Chevron delivered strong operational earnings; however, the headline figures painted a more complex picture due to operational challenges in the Middle East that contributed to the spike in Brent crude prices. This situation created a timing mismatch where the financial merits of hedges were immediately recognized, while increases in physical oil values had yet to be fully accounted for in terms of earnings.
Correcting for $3.9 billion in unfavorable timing effects from unsettled derivatives, along with a $700 million hedging loss due to Middle East disruptions, Exxon's underlying earnings surged to $8.8 billion, a 16% increase from the previous year. The company's revenue also exceeded forecasts, hitting $85.1 billion against analyst expectations of $82.2 billion, while its operating cash flow amounted to $13 billion for the quarter.
Chevron's adjusted earnings per share reached $1.41, significantly beating the consensus estimate of 95 cents, marking its most considerable earnings surprise since October 2020. However, Chevron's revenue of $48.6 billion fell short of expectations, which were pegged at $52.1 billion.
#What Factors Contributed to Increased Oil Production?
Both companies also reported substantial increases in global oil production during this period. ExxonMobil achieved record production levels in Guyana, reaching over 900,000 gross barrels per day, contributing to a total net production of 4.6 million oil-equivalent barrels daily.
Additionally, in late March, the Golden Pass LNG project, a collaboration with QatarEnergy at the Sabine Pass terminal in Texas, successfully produced its inaugural batch of liquefied natural gas from Train 1. This facility is expected to enhance US LNG exports by around 5% in relation to 2025 levels, setting the stage for a stronger export trajectory.
Chevron also saw a 15% year-over-year increase in worldwide production, averaging approximately 3.8 million barrels of oil-equivalent per day. Notably, its US output saw a remarkable increase of 24%, consistently exceeding the 2 million barrel mark for consecutive quarters, primarily fueled by the completion of the Hess Corporation acquisition and expansions in the Permian Basin and Gulf of Mexico.
Following their earnings reports, shares of both Exxon and Chevron saw slight upticks in premarket trading, with Exxon increasing by around 1% and Chevron also edging upward.