Exxon, Chevron earnings hit by drop in oil prices - Yahoo Finance

Exxon, Chevron earnings hit by drop in oil prices

Energy giants Exxon Mobil and Chevron both saw their earnings suffer from the drop in oil prices. According to Dan Dicker, Founder of The Energy Word, "there's nothing to look at for investors here," emphasizing that the revenue declines reflect the movement in oil prices rather than the companies' actions. Stewart Glickman, CFRA Energy Equity Analyst, highlights that "you can't control where oil and natural gas prices go," and that both companies are focusing on what they can control.

Video Transcript

- We're watching shares of Exxon and Chevron today. After both energy giants reported results, Exxon saw a 56% dip in profit, Chevron's profit fell 48% as both companies took a hit from the drop in energy prices. Joining us now, we've got Dan Dicker who is the Energy Word founder and Stuart Glickman, CFRA energy equity analyst. Great to have you both here with us this morning to break down the results from these two majors in this sector here.

Dan, I'll start with you. When you kind of think about the results that we saw paired with the difference in the market from last year to this time to now this year this time, should this at all be surprising?

DAN DICKER: No, not at all. This is a very expected, Brad. In many ways, earnings results for the energy markets have been less important over the course of the last several months and quarters. And this was not at all unexpected. Of course, oil was up close to $120 in the fall of last year. And so getting to numbers like we have today and seeing earnings drop-- really, there's nothing to look at for investors here.

- Stuart what stands out to me is still the payouts that these companies are doing, right? So I think Exxon, it was paid out $8 billion in buybacks and dividends. What's different is it didn't take all of that from cash flow. It's taking that from, I guess, operations, from the business. Is that the right trade-off still, is that the only thing keeping investors in these names?

STEWART GLICKMAN: Hi, Julie. So you're right. Both of these companies have been pretty committed to dividends and buybacks for several years now. It's a strategy that has worked quite well to keep investors interested in the names. And I think they're really not focusing on production as a goal. Production is really an outcome.

After, they've managed through their businesses and decided what projects hit their hurdle rates. They're really focused on cash from operations. They've done a great job at maintaining cash from operations. Obviously lower this year, year over year because you can't control where oil and natural gas prices go. But I do think that until investors start to argue for more production growth and growth in general, you're likely to see both companies continue on this path.

- And so with that in mind, I mean, the appetite for investors as you were getting into there-- and Dan, I'll pivot this one back to you-- for investors that are kind of looking at a year out time horizon, just to try and figure out where production will continue to move or where even the shift towards other renewable energy alternatives may move as well, are there key metrics from these companies along that pathway that they should be paying closest attention to?

DAN DICKER: Well, look, I think Stuart is dead accurate on this that it's the discipline of the oil companies to not be brought in by the siren song of high oil prices and, in fact, targeted those projects that have the greatest return and not delved into those that have lesser returns despite the fact that oil prices go up and go down. And that has been the difference between investing in oil companies for the last two, three, four years and the seven or eight years before that when they were at the bottom of the heap in terms of sector performance.

So for us, we've said to people, you can no longer manage investments in energy stocks based upon the macros that are going feeding into the market like the Federal Reserve and the dollar drop and all of that but have to focus on the fundamentals of oil and the oil's price, and we think that they're pretty darn good and are getting better all the time. So as of a couple of weeks ago, I told my newsletter subscribers that I sounded the all clear and told them to get into some of these big names, including Exxon and Chevron because I think they're cheap compared on where we think oil is going to go over the next quarter or two.

- Stuart, are you on the same page on that?

STEWART GLICKMAN: Slightly different. I think that longer term through-- let's call it 2025 through the end of the decade, I think we're setting the stage for a pretty nice recovery in oil prices. I am a little concerned about the near-term picture because so much of the incremental near-term-- excuse me-- near-term demand growth in energy is allegedly coming from China. But the China reopening trade has not worked out so far this year the way that people were expecting at the beginning of the year. So the IEA is calling for about 2.2 million barrels a day of demand growth this year. That's an above average level of demand growth. And a lot of that is backend loaded.

So until we start seeing a lot more growth coming out of China, I think that the demand picture still looks murky. And I think this is why you've seen the OPEC plus cartel continue to be very disciplined on production because they're trying to make sure that the demand doesn't slip out of their grasp.

- Stuart, just as a follow here for you. One of the things that was called out within Chevron's report was also an announced agreement to acquire PDC energy here. That's something that kind of recently took place. With regard to the broader kind of M&A propensity within the energy sector right now, is there kind of a hotbed for dealmaking to take place given the run up that we had seen over the past year and for some of that cash to be put to work or is this kind of just one off deals that we're seeing come forward?

STEWART GLICKMAN: Yeah, so it's a great question. Look, the upstream space in energy in the US is very fragmented. I think there's definitely an opportunity for more M&A to occur. Typically, what you're seeing when you do get deals-- it's companies that have adjacent acreage right next to each other so that if you do obtain that acreage, you can probably get longer laterals and drive your unit costs down. So Chevron focusing on PDC gets them a little bit in the Permian, but a lot in the DJ basin, in the Rockies, and that I think was an opportunity that they saw. And I think the price they got was remarkably attractive, something like three times forward EBITDA, which is extremely cheap.

And then Exxon with Denbury-- I think that is an unusual case where Denbury offers them an awful lot with carbon capture and sequestration. And if you think about some of the benefits that come out of the Inflation Reduction Act, sweetened benefits, tax benefits that come out of CCS I think is something that look very attractive to Exxon.

- So it sounds like you and Jan have some differences. Both of you generally positive on some of these names. Dan Dicker, thank you so much, the Energy Word founder, and Stuart Glickman, CFRA energy equity analyst, thanks to you both.