(Bloomberg) -- Exxon Mobil Corp. resisted the trend toward reviving share buybacks and said a strategic reboot is in the offing for the world’s second-most valuable oil company. The shares slumped more than 2%.
On a day when the company and rival Chevron Corp. swung to their biggest profits since pre-pandemic days, Exxon made clear that, for now, excess cash will be devoted to debt reduction rather than stock repurchases.
Chief Executive Officer Darren Woods said investors should expect new strategic updates throughout the year as new directors brought in after the annual meeting in May have their voices heard. Analysts pondered what this may mean for shareholder returns in the future.
“I wouldn’t see huge shifts in the strategy but you may see accelerations, additional emphasis in areas,” Woods said Friday in response to analysts’ questions about what the strategic changes may look like.
As for a resurrection of buybacks that have been suspended since 2016, Woods said they are “on the table” for consideration.
In contrast, Chevron announced that share repurchases will be revived during the current quarter at a value of between $2 billion and $3 billion a year. That’s around half the amount it devoted to the program before it was suspended in early 2020. Chevron’s move followed similar steps by Royal Dutch Shell Plc, TotalEnergies SE and Eni SpA, all of which have reinstated buybacks this week.
“It says we’re confident in the future,” Chief Financial Officer Pierre Breber said in an interview. The level of buybacks was chosen because “it really is a range that allows us to also continue to pay down debt.”
Exxon fell 2.3% to $57.58 at 11:10 a.m. in New York trading. Chevron slipped 1.3% to $101.29.
Stock repurchases are being revived or raised across the board as sectors as diverse as steelmakers, retailers and manufacturers ride the crest of economic expansion. In particular, Big Oil executives are seeking to reward shareholders as commodity prices rise, a turnaround from previous booms when excess cash was poured into costly growth projects.
Faced with enormous climate challenges, the industry is attempting to entice investors by offering strong returns at a time when the dividend yield of the S&P 500 Index is at the lowest in almost two decades.
The lack of buybacks by Exxon overshadowed the $4.69 billion in profit it reported for the second quarter, the best period since late 2019, as its chemical division turned in a record performance. Chevron’s $3.1 billion second-quarter net income was its strongest showing since the start of 2020.
The companies’ combined cash flow from operations approached $17 billion, signaling an across-the-broad recovery after the dark days of 2020 that saw the titans of American oil incur massive financial losses.
Fresh off losing a proxy battle with an activist investor, which took control of a quarter of Exxon’s board, Woods’s immediate priority is to use excess cash to pay down debt.
After slashing capital spending and cutting its workforce by 14,000, Exxon has positioned itself to reap the rewards that come from this year’s recovery in demand for motor fuels and petrochemicals. On Friday, the company said full-year expenditures would be at the low end of the previously announced $16 billion-to-$19 billion range.
Exxon posted adjusted earnings of $1.10 a share, exceeding the 97-cent average estimated among analysts in a Bloomberg survey. As for Chevron, it earned $1.71 a share, on an adjusted basis, during the second quarter, trouncing the $1.60 average estimate.
Chevron’s repurchasing program comes on top of a dividend increase earlier this year, becoming the only Western oil supermajor to lift the payout above pre-pandemic levels. The company also shaved about $1 billion off its previous full-year capital spending estimate of $14 billion.
Even with recent increases, Shell’s and BP Plc’s dividends still lag pre-Covid-19 payouts. Exxon held its dividend steady earlier this week. Key to Chevron’s strength is that it entered the pandemic in a stronger financial position than rivals, with a low debt burden.
The buyback also signals a bullish outlook. CFO Breber said the repurchases will be sustained even during periods of lower oil prices. “I was clear on last quarter’s earnings call that we would start a buyback when we were confident we could sustain it over the cycle,” he said. “We’d want to sustain it for multiple years.”
READ: Chevron Is ‘Cautious’ on Oil Prices Over $70, Citing OPEC, Virus
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