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The company’s optimistic performance shows how oil producers can use price increases to reduce debt and increase shareholder spending.
On Friday, Exxon Mobil announced its largest quarterly profit in more than a year, exceeding analyst expectations and being boosted by rising oil prices and record earnings in the chemical business.
The optimistic result of the board’s dispute over the company’s direction highlights how oil producers can use the rise in oil prices to reduce debt and increase shareholder spending, rather than increase spending to increase production.
“As the global economic recovery increased demand for our products, all of our businesses continued to maintain positive momentum in the second quarter,” said CEO Darren Woods.
Exxon Mobil stated that its capital expenditures in 2021 are expected to be at the low end of the previous range of US$16 billion to US$19 billion.
Earlier in the day, rival Chevron slashed its 2021 budget, although the two US producers expected spending to increase in the second half of the year as they resumed investment in key projects including the prolific Permian Basin.
“ExxonMobil has continued the performance of major oil companies, with rapid performance improvement, and recovery from the abyss of the COVID crisis in the second quarter of last year,” said Peter McNally of Collins Group.
In the case of historical losses, Exxon Mobil once again used higher cash flow to reduce the huge debt accumulated to protect shareholder dividends. The company reduced its debt by US$2.7 billion, and since the end of 2020, the total debt has been reduced to approximately US$7 billion.
Although ExxonMobil supports shareholder returns through dividends, Chevron said it will resume stock repurchases at a rate of US$2 billion to US$3 billion per year.
Exxon Mobil also stated that compared to 2019, it will achieve cost savings of US$6 billion by 2023. On the basis of the cut of 3 billion U.S. dollars last year, more than 1 billion U.S. dollars in cost was also cut in the first half of 2021.
According to Refinitiv’s IBES data, ExxonMobil’s second-quarter earnings per share were $1.10, exceeding market expectations of 99 cents. At the end of last month, the company gave extensive instructions on its performance, prompting several analysts to lower their earnings forecasts.
In May, shareholders removed three ExxonMobil directors for a hedge fund nominee, promising to increase returns and better prepare the company for a low-carbon world.
CEO Woods said that the company began working with new directors in June to conduct an in-depth review of its business and held its first face-to-face board meeting after a virtual meeting this week.
Due to strong demand for plastic packaging, tight industry supply and transportation restrictions, and profit margins expanded, the company’s chemical and plastics business revenue increased nearly five times year-on-year to a record US$2.32 billion.
Rising oil prices pushed the company’s exploration and production business earnings to 3.19 billion U.S. dollars. Production this quarter fell by 2% to 3.6 million barrels of oil equivalent per day.
The company said it expects oil and gas production to increase this quarter due to reduced planned maintenance.
However, the refining and marketing business has not yet recovered, with a loss of US$227 million, mainly due to maintenance costs and oversupply of products.
ExxonMobil’s U.S. refining business suffered losses for six consecutive quarters. Outside the United States, five of the past six quarters experienced losses in the refining business.
Due to the general decline in energy stocks, the company’s share price rose 43% this year after the plunge during the coronavirus pandemic, but fell 2.3% to $57.59.
Net income in the second quarter was US$4.69 billion, compared with a loss of US$1.08 billion a year ago, including gains related to reversing inventory write-downs.
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