Per aspera ad astra

Chevron and ExxonMobil have a lot in common as the two remaining US-based oil majors. But both have reacted very differently in the face of plummeting crude prices.

To see two different paths in the face of adversity, look no further than the latest earnings results from these two.

Chevron has followed some of its European peers in announcing a sharp cut to capital expenditure (capex) next year and plans for thousands more job cuts. In contrast, ExxonMobil has for the most part held its course. 

Chevron will cut capex by about 25pc to $25bn-$28bn in 2016, with further reductions in 2017 and 2018 to the $20bn-$24bn range. It plans to shed about 6,000-7,000 employees from a total of 64,715 as of end-2014. The major plans to shed assets worth as much as $10bn by 2017. It had initially set a divestment plan of $15bn spread over 2014-17, and has already completed sales of $11bn as of September.

ExxonMobil has steered clear of announcing steep job cuts. “We do not have any plans to have any restructuring charges. We have really focused on rightsizing the organization through our history,” vice-president of investor relations Jeffrey Woodbury says. The company has managed to net around $7bn of operating expenditure savings, and capex is on track to come in below its 2015 guidance of $34bn.

Chevron has some pressing issues on hand. Its Angola LNG project is much delayed, the massive Big Foot project in the US Gulf of Mexico (GoM) faced a setback as part of the infrastructure fell into the sea, and the Wheatstone LNG project in Australia may have difficulty in meeting its schedule to export its first cargo in late 2016. “These are vast projects, and we are not sure how to get comfort that the mistakes of the past will not be repeated,” Paul Sankey of Wolfe Research said.

Meanwhile ExxonMobil is on track to bring online the 32 major projects in its pipeline between 2012 and 2017. Of the total, 21 have already started, including five this year, which have added more than 750,000 b/d oil equivalent (boe/d) of working interest capacity.

Once Chevron’s projects come online, it may be much better off in driving output growth than its peer. “Chevron is our other preferred supermajor on valuation, low leverage versus peers and its free cash flow turnaround from Australia LNG projects,” Tudor Pickering Holt says. Together with “its underappreciated Permian business,” near-term growth will be strong, “avoiding the need for an acquisition in the short-term.”

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