ExxonMobil, Chevron Steer Windfall Profits into Debt Reduction

ExxonMobil Holdings Corp. and Chevron Corp. plowed blowout profits into debt reduction rather than huge buyback increases in a sign of Big Oil’s caution about how long war-driven price rallies will last.

The biggest United States oil companies more than doubled second-quarter net income on the heels of global energy market disruptions stemming from conflicts in the Persian Gulf and Russia. But in a pivot from previous oil-sector heydays, the supermajors refrained from lavishing the proceeds on investors.

ExxonMobil lowered net debt by more than US$7 billion during the quarter, the equivalent of almost half the company’s adjusted net income for the period.

Meanwhile, Chevron steered a record US$8.4 billion into debt reduction, slashing its ratio of net debt to cash flow from operations by more than half, according to a statement Friday.

The North American giants’ biggest European rival, Shell PLC, earlier this week also held the line on shareholder rewards and instead trained its massive windfall profit on whittling debt.

Shell cut net debt by about US$10.8 billion, crimping its ratio of net to to equity to just under 19 per cent from more than 23 per cent in the prior quarter. The company held buybacks even at US$3 billion.

The largest crude-supply disruption in history is proving highly profitable for the supermajors as customers scramble to replace flows from the Persian Gulf, a gateway for 20 per cent of the world’s petroleum. Crude has dropped since spiking to more than US$125 a barrel in April due to on-off talks between the U.S. and Iran, but refining margins are still near record levels, meaning some of the excess profits will likely endure into the second half of the year.

ExxonMobil narrowly missed profit forecasts despite soaring crude prices and widening fuel-making margins as the U.S.-Iran conflict enters its sixth month.

Adjusted second-quarter earnings of US$3.52 a share were two cents below the average estimate in a Bloomberg survey. Exxon’s miss was due in part to refinery maintenance that meant it wasn’t able to fully capture high prices for gasoline, diesel and jet fuel.

That said, overall profit of US$14.7 billion was the largest since Russia’s 2022 invasion of Ukraine that upended global markets.

Chevron, for its part, reaped its highest quarterly profit on record, surpassing the prior all-time highs achieved in 2022.

The explorer lifted production by 20 per cent to the equivalent of 4.07 million barrels a day. Assets in the U.S. Gulf of Mexico and Kazakhstan ramped up output during the quarter while the company also benefited from the integration of Hess Corp. assets acquired in last year’s $55 billion takeover. The company’s U.S. production reached a record high.

Share buybacks inched higher but at the low end of the guidance range.

“We were able to reduce debt,” chief financial officer Eimear Bonner said during an interview. “And keep more cash on the balance sheet, given the volatile times that we’re operating in.”

Chevron ran its U.S. refineries almost flat out, with a utilization rate above 97 per cent. Profit from U.S. fuel making surged to US$2.4 billion, more than 10 times the prior quarter’s return.

Big Oil’s windfall profits are becoming a political flashpoint as inflated energy prices stoke inflation around the world, not least in the U.S., where gasoline prices have once again crept above US$4 a gallon. Retail prices for diesel, the workhorse of the global economy, are up more than 40 per cent from pre-war levels. President Donald Trump last month ordered a Justice Department probe of fuel prices, which he claimed weren’t dropping fast enough.

ExxonMobil’s refining profits reached a four-year high of US$4.1 billion but it was considerably lower the US$5.37 billion that analysts expected. The company said it produced record amounts of diesel in the period but earnings were “offset by scheduled maintenance impacts.”

Despite banner profits, the oil industry is a “pretty low margin business,” ExxonMobil CFO Neil Hansen said during an interview. “We’re not big enough to impact price, really no company is.”