Exxon/Chevron: energy stocks still have gas left in the tank ... https://www.ft.com/content/cce3e893-ebba-459d-91b6-13f3f...

Opinion Lex
Exxon/Chevron: energy stocks still have gas left in the tank
Higher oil production and natural gas prices lead to windfalls

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Exxon/Chevron: energy stocks still have gas left in the tank ... https://www.ft.com/content/cce3e893-ebba-459d-91b6-13f3f...

For those willing to invest in oil, Chevron and Exxon remain good bets © FT Montage/Lucy Nicholson/Reuters/Eric Piermont/AFP
/Getty

OCTOBER 28 2022

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Big Tech’s pain has been Big Oil’s gain. High oil and gas prices have squeezed
consumer wallets. Large companies’ cuts to cloud and advertising budgets are
causing tech sector angst. But for energy producers, it has been another
quarter of record-busting profits.

US supermajors ExxonMobil and Chevron raked in nearly $31bn in combined

net income during the third quarter. That is more than twice what they
brought in a year ago. Exxon posted the highest profit in its 152-year history,
while Chevron announced its second-best quarterly result ever. Their earnings
follow a string of similarly strong results from European energy groups earlier
this week.

At Exxon and Chevron, the windfalls were driven by higher oil production and
natural gas prices, along with strong earnings from their “downstream” oil

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natural gas prices, along with strong earnings from their “downstream” oil
refining businesses. Both have their best balance sheets since at least 2014,
when crude prices also traded in triple digits.

Energy stocks have outpaced the wider market this year. The S&P 500 energy
index is up 61 per cent, compared to the tech index’s 26 per cent decline. Yet the
oil sector trades on just nine times forward earnings — about half of its pre-
coronavirus pandemic levels. Yet tech stocks still command a multiple of
around 21 times, despite slowing revenue growth and profit declines.

Success breeds scrutiny. US president Joe Biden, who in June accused Exxon of
making “more money than God”, blames oil companies for fanning inflation. In
both Europe and the US, calls grow for a windfall tax on the sector’s record
profits. Meanwhile, costs should swell as oil service companies look to pass on
their higher operating expenses to their clients.

For those willing to invest in oil, Chevron and Exxon remain good bets. Their
strict capital discipline stands in stark contrast to the tech sector’s profligate
ways. Assuming oil prices hold up given the boycott of Russian oil and Opec’s
production cuts, they will remain reliable cash gushers for another year.

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