Exxon/Chevron: time to talk about that cash pile

Energy prices may have come down from their 2022 highs. But Big Oil is still making money hand over fist. Investors might ask what they plan to do with all that cash.

In the US, ExxonMobil and Chevron collectively made more than $18bn in net income during the first quarter. Though down from $19.1bn pocketed by the pair in the final quarter of last year, the sum still represents an extraordinary 53 per cent increase from the year ago period. For Exxon, it was its most profitable start to the year ever.

Both Exxon and Chevron used their windfalls to lavishly reward shareholders last year and pay down debt. That should continue this year. But with underlying cash flows still well above historical norms and net debt down sharply, they may want to think about more adventurous uses for their cash.

Exxon, more than any other supermajor, can afford to go shopping. It generated $16.3bn in operating cash flow during the quarter. Even after $5.8bn of capital expenditures and $8.1bn of shareholder returns, it grew its cash balance by $3bn quarter-over-quarter to $32.7bn. At this rate, it could end the year with nearly $42bn of cash and cash equivalents. On top of that, the stock, at a record high of over $119, provides additional firepower in any deal negotiations.

Adding scale to its US onshore Permian Basin production would be the obvious move. Pioneer Natural Resources, a top four producer there, would be a big prize. Exxon is also in that top tier, with Chevron and ConocoPhillips. A combination with Pioneer might attract antitrust scrutiny given their strong positions in that shale region.

But other Permian deals including by ConocoPhillips have not. Pioneer trades about a quarter less than Exxon on a 2024 price to forward earnings of 9 times, suggesting that a cash or shares deal still looks attractive.

Exxon predictably has deflected any questions on acquisitions, saying any deal has to bring value. But given its cash gusher, expect deal chatter to continue.