Exxon Mobil Corp. XOM and Chevron Corp. CVX – with their massive market capitalizations of $325 billion and $169.6 billion, respectively – dominate and define the U.S. energy industry.
Both these companies are engaged in the exploration and production of oil and natural gas, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses.
But how do you choose between the two supermajors? Here’s a look at Exxon Mobil and Chevron stocks’ performance in 2015.
Stock Performance
Both Exxon Mobil and Chevron have underperformed the S&P 500 in the past year, with Exxon Mobil stock falling 14% to Chevron’s 19%, compared to the S&P 500’s gain of 1%. Of course, these are numbers during a year when oil sank into a bear market.
Exxon Mobil stock now trades at about 16.7 times trailing twelve months earnings and 19.9 times forward earnings for 2016, while Chevron stock is valued at 19.8 times trailing twelve months earnings and about 26.0 times forward earnings.
Recent Earnings
In an indication of the toll that low commodity prices are taking on the industry, Chevron’s earnings per share for the nine months ended Sep 30 were down 67% at $2.76, compared with a 47% drop at Exxon Mobil to $3.18.
However, the two largest U.S. energy companies by market value must be glad they did not let go their refineries, when many others did. Exxon Mobil’s ‘downstream’ unit more than doubled its profits to $5.2 billion, from $2.5 billion in the comparable period of 2014. On the other hand, Chevron’s refining and marketing operations reported a 134% rise in profits to $6.6 billion.
The improved downstream results could be attributed to a climb in refining margins due to lower input costs. This countered the faltering sales of their exploration and production businesses and enabled them to report better-than-expected earnings in two out of the three quarters – even amid plunging commodity prices.
Production & Capital Expenditure
Exxon Mobil and Chevron are suffering from marginal or falling returns, reflecting their struggle to replace reserves, as access to new energy resources becomes more difficult. Given their large base, achieving growth in oil and natural gas production is anyways a challenge for these companies over the last many years.
During the Jan-Sep period, the Irving, TX-based oil and natural gas powerhouse Exxon Mobil’s production averaged 4,047 thousand oil-equivalent barrels per day (MBOE/d), down 2.7% from the first nine months of 2014, while another domestic behemoth Chevron’s total volume of crude oil and natural gas increased by 1.5% from the year-earlier level to 2,605 MBOE/d.
At $23.6 billion, Exxon Mobil’s capital and exploration expenditure for the first nine months of this year has run 16% lower than in the equivalent period of 2014. Chevron managed to reduce its outlay by 13% to $25.3 billion.
Shareholder Value
Despite the bloodbath, both Exxon Mobil and Chevron have continued to reward shareholders with large annual dividends of $2.92 and $4.28 per share – currently yielding 3.7% and 4.8%, respectively. What’s more, 2015 marks the 33rd and 28th consecutive year where they have increased annual per-share dividend payments.
However, in a move designed to conserve cash amid the energy price rout, the companies have stopped pouring money into their once vigorous stock buyback programs. While Chevron scrapped its 2015 share repurchase scheme back in January, Exxon Mobil has trimmed its buybacks program by around 50%.
Through the first nine months of the year, Exxon Mobil spent $9 billion in dividends, while shelling out $2.5 billion on share buybacks. Meanwhile, Chevron paid out $6 billion in dividends.
Cash Flow from Operations
Leaving aside dividends and repurchases, Exxon Mobil’s cash flow from operations and asset sales came in at $27.6 billion in the first nine months of the year. Importantly, this was higher than its capital spending, a testament to the company’s solid operations and cost discipline. In fact, year to date, the corporation has generated $7.4 billion in free cash flow.
In contrast, Chevron’s cash from operations was $14.9 billion, more than $10 billion short of its capital spending.
Bottom Line
Exxon Mobil and Chevron are two of the best-run companies among the global oil majors, consistently producing industry-leading financial returns. Both are still sound financially. In fact, their financial flexibility and strong balance sheets are real assets in this highly uncertain period for the economy. Both remain in excellent financial health, with enough in cash on hand and a very manageable debt-to-capitalization ratio in the low-to-mid teens.
Nevertheless, neither Exxon Mobil nor Chevron – both carrying Zacks Rank #3 (Hold) – has been spared the effects of the rout in crude prices. But going by their performance in 2015, Exxon Mobil seems to be in relatively better shape.
The most notable victim of the commodity meltdown has been share buybacks – gone for Chevron, Royal Dutch Shell plc RDS.A and BP plc BP. Despite trimming significantly, Exxon Mobil still manages to spend $500 million a quarter to purchase shares.
Next is the dividend. Exxon Mobil, the only triple-A credit-rated company in the industry, hiked its dividend in April by 6% to 73 cents. The same can’t be said for Chevron, which kept it the same at $1.07 a share.
The most important advantage for Exxon Mobil over Chevron, though, lies in its ability to generate free cash flow. In fact, the company has done a far better job at preserving cash than Chevron that has been free-cash-flow negative for a few years.
Such has been the repercussions on Chevron that it has scaled back its production growth target over the next two years and is cutting up to 7,000 jobs, or 11% of its workforce.
Finally, Exxon Mobil’s business is roughly twice the size of Chevron’s, which gives it the gargantuan scale to stand up a bit better to industry headwinds.
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