Put a Kitten in Your Tank: Big Oil Gets Less Bold -- Heard on the Street
April 28 2017 - 01:33PM
Dow Jones News
By Spencer Jakab
"Big Oil," the moniker attached to the giant, multinational
energy companies, is slightly less apt than it was a year ago even
as the industry's financial fortunes have improved.
Exxon Mobil Corp. and Chevron Corp. reported first-quarter
earnings on Friday that, collectively, were $5.6 billion, or 416%,
higher than a year earlier, driven by a big rise in crude prices.
But they were both less oily and less international than in the
past.
Crude output fell at both companies, reflecting a major
retrenchment in capital expenditures and a greater reliance on
natural gas. Overall hydrocarbon production was down for Exxon and
roughly flat for Chevron, but both companies only saw growth
domestically, largely from shale formations.
The change reflects a deliberate shift in strategy. While
neither company has abandoned mammoth, technically challenging
international projects, unconventional U.S. production is
attracting more of their money even as overall spending has
plunged.
The key attraction of doing this is the much lower exploration,
political and financial risk since there are no dry holes, a
capricious government won't nationalize fields and the investment
spigot can be turned off if commodity prices tumble. The downside
is that much smaller companies can do the same thing, often with
less financial discipline.
For now the news is good for both Exxon and Chevron. They are
finally generating enough cash to rebuild their weakened balance
sheets and to perhaps resume their once-prodigious share buybacks.
In the longer run, though, big oil's resemblance to small shale may
mean skimpier returns across the next cycle.
Write to Spencer Jakab at spencer.jakab@wsj.com
(END) Dow Jones Newswires
April 28, 2017 13:18 ET (17:18 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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