(Bloomberg) — Exxon Mobil Corp. and Chevron Corp. capped Big Oil’s earnings season by unveiling a blockbuster increase in fossil fuel production — just as OPEC and its allies prepare to increase the supply of crude oil to the global market.
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U.S. oil companies’ gains were fueled by pumping record amounts of crude oil from the Permian Basin, which continues to surprise analysts with year-over-year growth and efficiency gains. Exxon’s oil and gas production boosted by its acquisition of Pioneer Natural Resources Co. worth $60 billion, rose 24% from a year earlier, while Chevron grew production 7%.
The American companies were not alone. Shell Plc and BP Plc increased production by 4% and 2% respectively, despite net zero targets that are more aggressive than their US rivals.
All this leads to a weakening outlook for oil prices, which have already fallen by about 12% in the past six months due to weak demand from China, the world’s largest importer of crude oil. They could fall even further if the Organization of the Petroleum Exporting Countries follows through with its plan to bring back previously curtailed production.
This moment also stands in stark contrast to just a few years ago, when executives were trying to rein in capital spending during the pandemic and when they were under pressure from the environmental, social and governance movement to invest in low-carbon alternatives to fossil fuels. Success in the first and failure in the second has led the industry to unite around a common strategy: oil and gas cheap enough to withstand any energy transition scenario.
“Exxon and Chevron are sticking to their core oil and gas strategy while growing bigger in some of the best assets in the world,” said Nick Hummel, a St. Louis-based analyst at Edward D. Jones & Co. for oil and gas feels soft, especially now that OPEC is about to release more barrels into the market.”
Exxon, which lost an activist battle in 2021 to ESG-focused Engine No. 1, is the best example of the change in strategy.
Acquisitions, divestitures, cost cuts and efficiency gains have “doubled” the oil giant’s profit margins per barrel since 2019, even at constant oil prices, Chief Financial Officer Kathy Mikells said in an interview.
And meanwhile, Chevron is pumping 27% more oil and gas than it did a decade ago, despite halving its capital expenditures. Much of that is because the company has spent heavily on Australian gas projects that are now operational, but it also has to do with efficiency gains and a pivot towards the Permian. Chevron has doubled its production in the basin over the past five years and is now returning record amounts of cash to shareholders.
