Investment Analysis: Chevron (CVX) vs. Exxon Mobil (XOM) – Q3 2024 Earnings Overview
Earnings Performance Overview: Both Chevron and Exxon Mobil reported better-than-expected Q3 earnings on Friday, although each saw a significant decline in profits year-over-year. Chevron posted a 17% decrease in profits to $2.51 per share, with revenue down 6% to $50.67 billion. Analysts had projected $2.43 EPS on $48.86 billion in revenue. Exxon Mobil’s earnings dipped 15% to $1.92 per share, with revenue at $90.02 billion (down about 1% year-over-year), exceeding analyst estimates of $1.88 EPS but missing on expected revenue of $93.98 billion.
Both companies attributed their profit declines to lower crude realizations and higher exploration costs. Chevron cited lower margins on refined products and the absence of favorable prior-year tax items as factors for its decline, while Exxon reported increased exploration expenses. Despite these challenges, each company boosted shareholder returns, with Exxon Mobil increasing its dividend by 4% to $0.99 per share and Chevron returning a record $7.7 billion to shareholders in Q3.
Exxon Mobil VS Chevron - 1 Week Chart
Key Growth Drivers and Headwinds:
- Oil Prices and Market Conditions: U.S. oil prices recently moved back above $70 per barrel, influenced by global geopolitical tensions, including the conflict between Israel and Iran. Despite this, oil prices remain under pressure due to high U.S. production levels and weak demand from China, with oil prices down 13% over the past year. Both companies face headwinds from these price fluctuations, which continue to impact their earnings, especially in refining margins and crude realizations.
- Guyana Operations:
- Exxon Mobil holds a 45% stake in Guyana’s oil-rich Stabroek block and has rapidly expanded production in the region. In Q3, Exxon produced 400,000 barrels per day (bpd) from Guyana and anticipates reaching 1.2 million bpd by 2027. Exxon’s expansion in Guyana includes plans for a seventh project with production capacity of 120,000 to 180,000 bpd starting in 2029, pending approval.
- Chevron recently moved into Guyana through its $53 billion acquisition of Hess, giving it a significant share in the Stabroek block. While Exxon has a head start as the operator, Chevron’s acquisition secures long-term exposure to one of the world’s largest oil discoveries in the last decade. However, Exxon and Chevron are now embroiled in a legal dispute over the right of first refusal for the Hess deal, with a hearing set for May 2025.
- Capital Expenditures and Strategic Investments:
- Chevron allocated $17.6 billion for capital expenditures, a 54% increase year-over-year, driven by investments in AI and data centers. Exxon, meanwhile, continues to expand its portfolio in the Permian Basin and Guyana, underscoring its focus on increasing production capacity.
- Both companies face the challenge of managing high capital expenditures while maintaining healthy profit margins. Exxon’s diversified focus, with new projects in the Gulf of Mexico and Guyana, places it in a favorable position, while Chevron’s entry into the offshore Guyana sector presents a new growth opportunity.
Stock Performance and Market Sentiment:
- Exxon Mobil has outperformed Chevron in 2024, with XOM gaining 17% year-to-date, reaching a record high in October. Chevron, on the other hand, is down approximately 1% in 2024 and sits 10% below its yearly high.
- Recent geopolitical events, including rising tensions in the Middle East, have also impacted U.S. oil prices, indirectly affecting Chevron and Exxon stock performance. Exxon’s sustained dividend growth and recent dividend increase add to its attractiveness for income investors.
Positives and Risks for Investors:
Positives:
- Exxon’s Strong Position in Guyana: Exxon’s established position in Guyana and its aggressive expansion plan provide a long-term growth pathway. With substantial stakes in new wells and development projects, Exxon’s Guyana operations are expected to significantly boost output over the next several years.
- Chevron’s Acquisition of Hess: Chevron’s acquisition of Hess allows it to capitalize on Guyana’s oil reserves, diversifying its production assets and positioning itself for future growth.
- Dividend Growth and Shareholder Returns: Both companies have returned billions to shareholders, with Exxon recently increasing its dividend by 4% and Chevron returning a record $7.7 billion in Q3, making them appealing to income-focused investors.
Risks:
- Geopolitical Tensions: Both Exxon and Chevron have exposure to global risks, particularly in their supply chains and operational regions. Increased tensions between the U.S. and China, as well as conflicts in the Middle East, could affect their global operations and revenue stability.
- High Capital Expenditures: With both companies allocating substantial funds for exploration and expansion, high capital expenditures may strain profit margins if oil prices remain volatile or weaken further.
- Legal Disputes in Guyana: The arbitration over Chevron’s acquisition of Hess’s stake in Guyana introduces legal uncertainties. A potential setback in this dispute could impact Chevron’s growth plans in the region, especially if Exxon successfully asserts its right of first refusal.
Conclusion: Investment Outlook
Exxon Mobil appears better positioned for growth due to its advanced production capabilities in Guyana and strong dividend performance, making it attractive to long-term growth and income investors. With a 45% stake in the Stabroek block and production already exceeding 400,000 bpd, Exxon is likely to continue its growth trajectory. Meanwhile, Chevron’s acquisition of Hess offers strategic entry into Guyana’s oil reserves, diversifying its asset portfolio and adding potential for future expansion.
Exxon and Chevron offer solid returns considering dividend growth if an income investment approach was the goal. However, Exxon’s higher production targets in Guyana and consistent stock performance make it a slightly stronger choice in terms of growth
Written by Philip Papageorgiou
Follow me on X ex Twitter: PhilipForexCom
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