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Exxon And Chevron Disagree Over How To Handle Increasing Cash Hoards

Exxon And Chevron Disagree Over How To Handle Increasing Cash Hoards
Exxon Mobil Corp. and Chevron Corp., the two biggest U.S. oil firms, are raking in cash from booming oil and gas operations, but they disagree on what to do next.
On Friday, the pair reported first-quarter earnings that far exceeded Wall Street expectations. Analysts anticipate that Exxon will continue to post great results this year, with its net income hitting $11.4 billion and Chevron's earning $6.6 billion.
Both have practically perfect balance sheets, have paid off debt accrued during the COVID-19 recession, and are spending significantly less than in the past on new exploration and development projects.The pair have low, net debt-to-capital ratios of about 4%, a fraction of the double-digit ratios of few years ago, and have cut spending on new projects to less than half their income. The result: huge cash reserves, far in excess of what they need for routine operations.
They disagree on what to do next, with Wall Street pressing for greater dividends and share repurchases out of concern that too much cash could herald a surge in expensive acquisitions.
According to Exxon CEO Darren Woods, the corporation is in a strong position to weather a cyclical downturn as a result of rising cash reserves.
"The question is obviously when, but that will come," Woods said, after saying he would "expect to see cash balances higher" in times when the markets are on the top end of the cycle.
The CEO mentioned the robust demand for the company's products and stated that he is not opposed to acquisitions if they can increase shareholder returns.
"It's got to be one where what Exxon Mobil brings to the table actually increases what either company would do independent of one another," he said.
At the end of the first quarter, Exxon had $32.6 billion, while Chevron had $15.7 billion in its vault—roughly triple what it needs for operating activity.
However, Chevron, which twice made bids on competitors, winning Noble Corp for $4.1 billion during the 2020 recession, anticipates having to use less cash, according to Finance Chief Pierre Breber.
"We don't intend to hold $15-plus billion of cash on our balance sheet," he said, describing too much cash on the books as "economically inefficient for us to hold it, and it is not our cash, it is our shareholders' cash."

Christopher J. Mitchell

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