ExxonMobil And Chevron Post Strong Profits Despite California Hits

ExxonMobil XOM made news in early January when it said it would be forced to take a major, $2 billion impairment hit against its 2023 earnings related to its operations in the anti-oil and gas state of California. Efforts by Gov. Gavin Newsom’s government to force the shrinking number of oil and gas companies still active in the state with draconian regulation and taxation also forced Chevron CVX to take an even bigger, $4 billion hit related to its own operations in the state.

That major impairment charge played a significant role in cutting Chevron’s 2023 profits down from 2022. In total, the San Ramon-based major reported profits of $21.3 billion for 2023, down 20% from the record $26.3 billion it recorded the previous year. But Chevron’s profits rose in the wake of the announcement, which still beat market expectations.

Houston-based ExxonMobil, meanwhile, also beat expectations by announcing robust profits for 2023 of $36 billion, well below the all-time record $56 billion the company recorded in 2022, but impressive in light of the significant drop in prices for both oil and natural gas during 2023.

“Our consistent strategy and execution excellence across the business delivered industry-leading earnings and enabled us to return more cash to shareholders than our peers in 2023,” said Darren Woods, chairman and chief executive officer in the company’s release.

Chevron CEO Mike Wirth also touted his company’s record of returning value to shareholders. “In 2023, we returned more cash to shareholders and produced more oil and natural gas than any year in the company’s history,” he said in Chevron’s release.

The two US competitors traveled similar paths during the year. Both entered into major acquisitions during the fourth quarter, for example. ExxonMobil dramatically raised its foothold in the prolific Permian Basin with its $60 billion deal to acquire big independent producer Pioneer Natural Resources PXD . Chevron also raised its shale holdings in its $53 billion deal to buy out Houston-based Hess HES Corp., though in the Bakken play in North Dakota rather than the Permian.

The big prize in the Chevron/Hess deal, though, was the 25% stake Chevron will now hold in the also-prolific Stabroek block offshore Guyana, which has become the fastest-growing international offshore oil development in recent years. That project is operated by ExxonMobil, which expects production to rise to 1 million barrels of oil per day by the end of 2027.

In its own offshore operations, Chevron was able to achieve first oil in its Mad Dog 2 project in the Gulf of Mexico. The company also acquired 73 exploration blocks in the Gulf of Mexico (GOM) lease sale 259 and submitted winning bids on 28 blocks in GOM lease sale 261.

While the management teams at both US majors had committed early in 2023 to place more focus on their core oil and gas businesses amid an evolving market situation, both maintained focus on pursuing low carbon projects they see as proper fits for their respective business plans.

One major milestone in this realm touted by Chevron is the expansion of its Bayou Bend carbon capture and sequestration (CCS) hub on the Texas Gulf Coast via a 100,000 acre acquisition. Bayou Bend is a joint venture involving Chevron, Talos Energy and Equinor.

ExxonMobil also advanced its own CCS ambitions with its $4.6 billion buyout of Denbury Resources DNR and its extensive network of carbon dioxide pipelines along the Texas and Louisiana Gulf Coast. The company’s Low Carbon Ventures business unit also announced a major project to produce lithium from the Smackover formation in Southern Arkansas, from which the company anticipates first production in 2027.

The Bottom Line

While overall profits for both US majors were off significantly year-over-year, few in the analyst community expected otherwise. The drop in average commodity prices from 2022 to 2023 alone almost guaranteed this would be the case.

Both companies showed agility by adjusting their capital investment strategies to take advantage of continuing strong demand for both oil and natural gas, a recalibration that became a trend across the industry during the year. At the same time, ExxonMobil in particular also maintained a strong focus on executing dramatic expansions in its Low Carbon Solutions business.

At the end of the day, the robust results posted by both companies are reflective of the relative health of the industry as a whole in the US. It is a healthy condition which stands at odds with the best efforts of government officials not just in California, but in Washington, DC as well.