Wrapup 2: Exxon, Chevron earnings propelled by war-driven refining surge

Chevron

Today 11:04

Exxon earns more from refining than from upstream in Q3
Chevron's Q3 downstream earnings reach highest point in at least six years
Both companies use excess cash to pay down debt
BP beats profit estimates, will pay remaining Deepwater Horizon liabilities
Adds analyst comment and European oil major results details in paragraphs 12, 13 and 15
By Sheila Dang
HOUSTON, Oct 30 (Reuters) - US oil majors ExxonMobil XOM.N and Chevron CVX.N both beat analyst expectations for quarterly profit on Friday, as soaring refining margins increased earnings from their fuel-making businesses – which typically have smaller profits – to rival the upstream segments. 
The US-Israeli war with Iran and the conflict between Russia and Ukraine have disrupted global energy markets and sent gasoline and diesel prices higher. The effective closure of the Strait of Hormuz and recent attacks on refineries in Saudi Arabia and Russia have knocked out fuel-making capacity, lifting margins for Exxon and Chevron as they ran their US refineries near full rates. 
Exxon, the largest US oil producer by market capitalization, is now earning more money from refining than from upstream for the first time in at least the past six years. Chevron's third-quarter downstream earnings also reached their highest point over the same time frame.
Shares of Exxon rose 2% in pre-market trading, while Chevron was up 1%.

INCREASING FUEL SUPPLIES 
Exxon is continuing to invest more in its refineries, including at its Baytown complex in Texas, to increase fuel production, and has leaned on its trading team to direct supplies to where they are needed globally, Chief Financial Officer Neil Hansen said in an interview.
"It's important to acknowledge that these higher fuel prices put real pressure on families and businesses," he said. "The most meaningful response ... that we can offer as a company is to pull every lever that's available to us to increase supply." 
Distillate production in the US will grow by another 100,000 barrels per day through the refinery investments, the company said in prepared remarks ahead of the earnings call, without giving a timeline. 
     
POLITICAL FLASHPOINT 
High fuel prices have become a political flashpoint ahead of Tuesday’s US midterm elections, with diesel and gasoline costs adding to voter frustration.
The industry has so far avoided some of the toughest measures floated in Washington, including a possible diesel export ban that US President Donald Trump had considered in September before saying in early October he would not impose it.
Chevron has opportunities to increase efficiency at its US Gulf refineries and could grow capacity by 7% at its Pascagoula refinery in Mississippi by the end of the decade, Chief Financial Officer Eimear Bonner told Reuters in an interview. 
Exxon reported third-quarter adjusted earnings per share of $4.23, while Chevron earned $5.28 in adjusted per-share profit. Chevron's earnings from the upstream and downstream segments both beat expectations, BMO Capital Markets analyst Phillip Jungwirth wrote in a research note. 
The results mirrored those of European oil producers Shell SHEL.L and TotalEnergies TTEF.PA, which also reported better-than-expected earnings on Thursday from record-setting refining margins. 
         
PAYING DOWN DEBT
The two US oil majors are using the cash windfall to pay down debt and strengthen their balance sheets instead of increasing dividends or buying back more shares. 
UK oil producer BP BP.L, which posted record quarterly net profit on Friday, said it would use the money to slash liabilities, including an early repayment of its outstanding $5 billion post-tax bill for the 2010 Deepwater Horizon oil spill that killed 11 people.
Exxon reduced debt by $8 billion during the third quarter, Hansen said, adding it planned to stick to its approach of maintaining a sustainable and growing dividend over the long term.
Chevron has cut net debt by nearly $14 billion when compared with the end of 2025. 
"We think in decades, not quarters," Bonner said. "We need that (strong) balance sheet through high prices and low prices."
Bonner said the spot price of benchmark Brent crude swung from as low as $68 per barrel to a high of $132 during the third quarter, underscoring the volatility of the energy market.
Exxon said it would repurchase $20 billion worth of shares in 2027, the same level as in the previous two years. 

 (Reporting by Sheila Dang in Houston; Additional reporting by Shadia Nasralla, Pooja Menon and Arunima Kumar; Editing by and Tomasz Janowski and David Holmes)
 ((sheila.dang@thomsonreuters.com; +1 646-983-0894))