Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.
The Case For Chevron
This company’s heritage can be found in the 1876 discovery of oil in the Los Angeles-area Pico Canyon Oilfield by Star Oil, which was acquired three years later by the Pacific Coast Oil Company—itself later acquired by John D. Rockefeller’s Standard Oil in 1900. That company became an independent entity when the federal government broke up Standard Oil’s monopoly in 1911, evolving over the years into Chevron. A 1984 merger with Gulf Oil and the 2000 acquisition of Texaco increased the company’s dominant force in the energy industry.Among its recent corporate developments, Chevron announced on Monday it completed its previously announced acquisition of Renewable Energy Group Inc for $3.15 billion. Chevron Chairman and CEO Mike Wirth said the acquired company was “a founder of the renewable fuels industry and has been a leading innovator ever since. Together, we can grow more quickly and efficiently than either could on its own.”
Other developments where Chevron has demonstrated a commitment to move away from fossil fuels included an agreement from last week to supply fuel linked to renewable natural gas for a Walmart Inc demonstration of Cummins Inc.’s new 15-liter natural gas engine for heavy-duty trucks.
The company also signed a memorandum of understanding with the Kazakh JSC National Company (also known as KazMunayGas) to explore potential lower carbon business opportunities in Kazakhstan and it joined the Global Center for Maritime Decarbonization to help support the development of potentially scalable lower-carbon technologies, including those that enable the use of ammonia as a maritime fuel.
In its most recent earnings data, the first quarter numbers published on April 29, Chevron reported total revenues of $53.2 billion, up from $32 billion one year earlier, with $6.2 billion in net income versus $1.3 billion from the previous year; the $3.23 earnings per share was greater than first-quarter 2021’s 72 cents per share.
Chevron’s worldwide net oil equivalent production in the first quarter was 3.06 million barrels per day, and Wirth stated the company was “doing its part to grow domestic supply with U.S. oil and gas production up 10 percent over first quarter last year.”
The Case for ExxonMobil
As with the case of Chevron, this company has roots in the 1870s—specifically, Rockefeller’s Standard Oil operations. With the 1911 breakup of Standard Oil, new independent entities were created with Standard Oil of New Jersey (which transitioned into Exxon) and the Standard Oil Company of New York (which became Mobil). Exxon and Mobil merged in November 1999.As with the case of Chevron, ExxonMobil’s recent corporate developments have focused on renewables and sustainability. Last month, the company partnered with Indonesia’s state-owned Pertamina to advance cooperation in carbon capture and storage and hydrogen production; it sold its Romanian upstream affiliate, ExxonMobil Exploration and Production Romania, to Romgaz for more than $1 billion; and it began early front-end engineering design studies to determine the potential for carbon capture and storage to reduce greenhouse gas emissions from multiple industries in Australia’s Gippsland Basin.
“We have opportunities to play a leading role in helping society achieve its net-zero ambitions and in meeting the world’s growing demand for energy and essential products,” said Chairman and CEO Darren Woods at last month’s shareholders meeting. “Recent events have reminded us how globally connected energy markets are. They’ve also underscored the importance of our role in creating sustainable solutions that improve quality of life, while supporting a lower-emissions future.”
In its most recent earnings data, the first quarter numbers published on April 29, ExxonMobil reported total revenues of $90.5 billion, up from $59.1 billion one year earlier, and net income of $5.4 billion compared to $2.7 billion one year before; the $1.28 earnings per share was greater than the 64 cents per share from first-quarter 2021.
Oil equivalent production in the first quarter was 3.7 million barrels per day, a 4 percent drop from the previous quarter which the company attributed to “weather-related unscheduled downtime, planned maintenance, lower entitlements associated with higher prices, and divestments.”
“The quarter illustrated the strength of our underlying business and significant progress in further developing our competitively advantaged production portfolio,” said Woods. “Earnings increased modestly, as strong margin improvement and underlying growth were offset by weather and timing impacts. The absence of these temporary impacts in March provides strong, positive momentum for the second quarter.”
The Verdict
While both companies are highlighting their commitment to alternatives for fossil fuels, it is impossible not to remember that they are reaping profits at a time when their core business—fossil fuel—is being priced at historic highs. Unless there is a seismic shift in the energy industry that forces fuel prices to plummet, it is safe to assume that these companies will end 2022 with record-breaking revenue.This is not to say that the companies are intentionally driving up fuel prices, and their commitment to renewable energy and sustainability should not be considered as insincere. Still, they are in the right place at the right time with the right product—you can’t ask for more.
While ExxonMobil’s shares can be acquired for a lower price than Chevron’s, both companies offer a solid investment. For this Stock Wars duel, the verdict is a tie. Unlike many other once-flashy sectors of the economy, this corner and the companies therein are in a grand situation that would benefit investors and traders.
