Here's Why ExxonMobil Corporation and Chevron Corporation Have Better Days Ahead

Integrated majors ExxonMobil and Chevron got walloped last year by disappointing production and horrible refining conditions. Here's why this year will bring a recovery across the integrated model.

Apr 9, 2014 at 9:05AM

It's a tough time for the integrated super-majors like ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), whose profits were walloped last year due to a horrible climate for downstream activities. Pricing spreads between domestic crude oil and the Brent international benchmark narrowed significantly, which resulted in drastically thinner margins on refined products. On the upstream side, a production dip was marked by field declines and disappointing new project returns.

So now, ExxonMobil and Chevron are eagerly looking forward to the future. Fortunately, the tough refining conditions are easing somewhat as we proceed into 2014. And, their management teams are excited about some major upstream projects that are nearing peak investment, which should add to production. Add it all up, and there are reasons to believe both integrated majors have more profitable days ahead.

Production growth ahead
Chevron's portfolio fell flat in 2013. Total net production of oil equivalents dipped by approximately 0.5%. While disappointing, Chevron held up well relative to ExxonMobil. Exxon's production last year fell 1.5%. In downstream activities, both companies performed extremely poorly. The result last year was that ExxonMobil's and Chevron's earnings-per-share fell 24% and 17%, respectively, in 2013.

However, better days are ahead because both Chevron and ExxonMobil are at a peak investment stage for upstream projects, which will result in lower spending, that should help increase free cash flow. In all, ExxonMobil expects to begin production on a company record, 10 major projects this year, with a combined capacity of approximately 300,000 barrels of oil equivalents per day. That represents 13% growth from the 2.2 million barrels of equivalents produced per day in the fourth quarter.

Chevron's Wheatstone and Gorgon projects together represent the company's major inroads into liquefied natural gas, specifically designed to serve the Asian emerging markets, where demand for natural gas is soaring. The Wheatstone development is a $29 billion undertaking, which includes two LNG trains with a combined capacity of 8.9 million tonnes per annum and a domestic gas plant. First shipments are expected in 2016.

The other major development in Australia is the Gorgon project. The Gorgon project is one of the world's largest natural-gas projects and the largest single resource development in Australia's history. Chevron expects the first shipment of LNG from the Gorgon project in early 2015. In all, Chevron believes it will add as much as 800,000 barrels of oil equivalents in production by 2017.

On the downstream side, ExxonMobil believes the horrible global refining conditions that sunk profits last year are finally abating somewhat. Management stated that a moderate U.S. economic recovery is sustainable, and China's growth rate is stabilizing as well. In addition, in the fourth quarter, the company noticed a widening discount between West Texas and Brent prices.

Going forward, ExxonMobil expects some strengthening in global refining margins. For its part, Chevron sees opportunity in its petrochemicals segment, where it is targeting profitable opportunities in chemicals and lubricants.

Focus on profitability
When you combine their impressive upstream portfolios with the fact that each company will spend less on capital expenditures this year, you can make a case for why their profitability should improve. ExxonMobil plans to reduce capital expenditures from $42.5 billion last year to $39.8 billion this year. Likewise, Chevron has announced a $39.8 billion capital and exploratory investment program for 2014, representing a $2 billion decline from the previous year.

In addition, each company is an effective allocator of capital. ExxonMobil is famous for being an industry leader in this regard. It generated 17% return on capital employed last year, and routinely produces returns on capital in the high teens. As a result, it's reasonable to think that their focus on the most profitable opportunities will pay off.

Both ExxonMobil and Chevron are turning to profitable organic growth from developing and ramping up their existing projects, instead of making aggressive asset acquisitions. Both companies believe last year should be a peak for investment spending and they will finally be able to reap the benefits of those investments. Bringing their existing projects on-line will restore production growth, and improving downstream conditions means this year should be much better than last year.

You don't have to invest in energy giants alone for big yields
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 

Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers