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Exxon and Chevron Have 2 Groups to Please. It Won't Be Easy.Exxon and Chevron Have 2 Groups to Please. It Won't Be Easy.Barron's (Online); New York Exxon Mobil and Chevron posted record second-quarter earnings that thrilled investors . While Wall Street may be cheering those results, the companies know their critics in Washington will be harder to please. The companies' earnings on Friday were lifted by soaring energy prices. Oil industry critics say that they shouldn't be spending so much money on rewards to shareholders like stock buybacks and dividends when Americans are struggling to pay for gasoline. Exxon last quarter announced plans to buy back up to $30 billion worth of its shares by the end of 2023. Chevron upped the top of its buyback guidance range to $15 billion a year. Investors have been clamoring for buybacks, which increase the value of each of their shares and make it easier for the company to grow earnings per share. But politically, buybacks often draw negative attention. President Biden has been urging U.S. oil companies to spend more on drilling and refining crude to help increase supplies and reduce the price of gasoline. He recently complained that "Exxon made more money than God this year," in response to a question about the administration's plans for regulating oil companies. Biden has said that he is disappointed oil companies aren't drilling more given that they have leases on federal acreage that they could be using. Exxon and Chevron were sensitive to the criticism in their messaging on Friday. They emphasized their investments in production and refining in the latest quarter, with Exxon even including slides in its presentation deck that explained how a global shortage of refineries is causing prices to rise—and how the company is investing to help fix that problem. Asked in an interview with Barron's about how he responds to critics of buybacks, Chevron CFO Pierre Breber said that the company's "financial priorities have been consistent for years and really decades." That includes offering a stable and growing dividend, funding production, paying off debt, and buying back shares when possible—Chevron has done so for 15 of the past 19 years, so the latest flurry of buybacks isn't a new trend, he said. As for Chevron's role in helping bring the price of gasoline down, "we are increasing oil and gas production 7%. The way to lower prices is to increase energy supply, increase investment," he said. "We're doing that both in traditional and new energy." Exxon increased overall production, while Chevron's fell slightly because of a decline in international operations. Both companies also have been expanding their refining capacity, with Exxon announcing a 250,000 barrel a day refinery expansion in Texas that should come online next year. Exxon also said that it "leads all peers in oil and gas investment." Exxon's growth in refining and production gives it an edge over Chevron, wrote Peter McNally, analyst at research firm Third Bridge, in an email to Barron's. Exxon's refinery expansion in Texas reminds investors that "capacity is going up in the US downstream, an area that has been an enormous source of profits of late." Exxon's larger-than-average production plans were formerly considered a liability when oil prices were lower and investors worried about declining demand. As recently as last fall, big oil companies were getting pressured by members of Congress for producing too much oil and hurting the environment. "Are you embarrassed as an American company that your production is going up while the European counterparts are going down?" Rep. Ro Khanna (D., Calif.) asked Chevron CEO Mike Wirth in a House committee hearing in October. He also asked Exxon CEO Darren Woods to commit to reducing production like some European oil majors have done. Neither made that commitment. Now, Exxon and Chevron's investments in production and refining are a clear advantage from a market perspective—and if all that production can help bring down the price of gasoline, it could be a political advantage too. With oil prices high, and supply shortages expected for a long period, companies that can produce more are likely to post strong profits, pleasing investors. They can also stay in Washington's good graces at a time when politicians want more crude and refined fuels to be made in America. But over the next few quarters, depending on the path of prices, these companies may not be able to keep both groups happy. |
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