Chevron Corp. and Exxon Mobil Corp. saw their stock prices take a hit in recent weeks after announcing their latest earnings, and while both companies remain committed to boosting production in the Permian Basin of Texas, Chevron's announcement of a buyback program has helped its stock price to recover, while shares of Exxon, which has remained mum on any such stock repurchasing plan, continue to struggle.
As cash flow continues to improve in the next few years, Chevron should be in a position to resume its share buyback program, news that is expected to support the company's stock price in the near to medium term.
The announcement, made by company officials during its annual analyst meeting in New York on March 6, followed largely disappointing fourth-quarter 2017 results. But the company offered little in the way of specifics, including the timing, of a possible share repurchase program.
Buying back existing stock generally makes the remaining shares of a company more valuable. Many of Chevron's oil-and-gas-major peers, including BP PLC, Royal Dutch Shell PLC and Total SA, have such programs underway.
On Feb. 2, Chevron stock tumbled $6.99, or about 5.6%, to a closing price of $118.58 per share after the company earlier that day reported adjusted fourth-quarter 2017 earnings and cash flow that fell short of most analysts' expectations.
the recent buyback news is likely to inject some life in the medium term into Chevron's stock shares, according to analysts at Barclays. On March 6, after the analyst meeting, Chevron's shares on the NYSE rose 50 cents, or 0.4%, on the day to $113.65 per share. At the market close March 13, the company's shares were valued at $116.00 per share.
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Apart from the possible share repurchase, after capital spending and including asset sales, 2018 cash generation at Chevron is expected to run at about $14 billion with crude oil at $60.00 per barrel.
"The [free cash flow] profile looks even better than before, the Permian resource estimate was materially expanded, shale growth looks impressive, and the implied total company production growth profile looks even stronger than its already-leading position," Barclays analysts wrote March 7.
Chevron's total production worldwide, on a net oil equivalent basis, was 2.74 MMbbl/d in the fourth quarter of 2017, compared with 2.67 MMbbl/d in the fourth quarter of 2016. The company's net oil equivalent production for full year 2017 was 2.73 MMbbl/d, compared with 2.59 MMbbl/d in 2016.
However, Chevron is banking on rising output and, thus, lucrative returns from its Permian Basin investments. The company has accelerated its Permian production guidance to about 500,000 boe/d by the end of 2020 and 650,000 boe/d by the end of 2022.
During the fourth quarter of 2017, Chevron's production in the Permian was approximately 205,000 bbl/d, up by 60,000 bbl/d from the same period in 2016. The company said full-year 2017 production from the region averaged 181,000 bbl/d, up 35% over 2016.
Like Chevron, Exxon's strategy for growth in the next several years also lies in hiking its production in the Permian Basin, where it has indicated it plans to triple its oil and natural gas production to more than 600,000 boe/d by 2025.
Announcing plans to double cash flow and earnings by 2025 to more than $30 billion if crude prices hold at current levels, officials from Exxon did not broach a possible buyback program when speaking at the company's 2018 annual meeting, which disappointed many analysts.
The lack of information worked to press the company's already ailing stock price lower. Following its March 7 analyst day, Exxon shares slumped $1.92, or 2.5%, on the day to a closing price of $74.26 per share.
"Exxon failed to provide any real clarity on when share buybacks might resume, which, more than anything, seems to explain [the March 7] hefty sell-off. At a time when even some E&Ps (Conoco, Anadarko, Hess) have active buybacks, it is striking that both of the U.S. supermajors are not yet ready to pull the trigger," Raymond James analysts said in a March 8 note.
Since early February, Exxon's stock share price has taken a beating overall. Exxon shares on the NYSE tumbled $4.54 on Feb. 2, or about 5.1%, to $84.53 per share after fourth-quarter 2017 earnings results were issued. At the close of business March 13, the company's shares were valued at $74.53 per share, down $10.00, or almost 12%, in a little more than one month.
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"We think [Exxon] shares will continue to underperform following Analyst Day. We believe investors had relatively high expectations heading into the meeting in terms of hoped-for incremental positives (like greater disclosure and increased emphasis on cash return)" and the large increase in CapEx through 2025 will work to weigh on sentiment in the near-term, according to a March 7 Barclays note.
Exxon's CapEx budget is rather lofty. The company earmarked $24 billion for 2018, $28 billion for 2019 and more than $30 billion from 2020 and beyond. The Exxon expansion is part of a larger plan to invest $50 billion in its U.S. assets over five years in light of recent tax reform.
Chevron, on the other hand, intends to maintain its disciplined capital spending approach, allocating more than $18 billion for 2018 and an estimated $18 billion to $20 billion through 2020 for expenditures.
Barclays estimates that Exxon's cash flow from operations will total $38 billion to $40 billion in 2018 and 2019 amid a $64.00/bbl to $65.00/bbl price environment for Brent crude oil. In 2017, Exxon's free cash flow from operations totaled about $30.0 billion after asset sales.

