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Home / Business / Large oil prices are falling short of the crude price rally

Large oil prices are falling short of the crude price rally



The world's largest oil companies continue to disappoint investors with disappointing earnings far below a rally in crude oil, reflecting the fragile nature of a recovery from one of the worst price crashes in a generation.

Exxon Mobile
Corp.


XOM -3.58%

said quarterly net income rose to $ 4 billion from April to June, up 1

8% over the same period a year ago, but significantly below the more than 50% % that oil prices rose during this time. Production dropped to 3.6 million barrels of oil and gas per day, the lowest in more than 20 years, as an earthquake in Papua New Guinea resulted in lower volumes.

Win

Chevron
Corp.


CVX -0.38%

more than doubled to $ 3.4 billion, and the company announced plans to buy back around $ 3 billion of stock annually. The shares of both companies declined early Friday as earnings lagged far behind Wall Street expectations.

While oil companies are generating record cash, they have slowly returned more to investors, another factor has been dissatisfaction. Exxon, Chevron and other large companies posted their highest gains in the second quarter since 2014, as the oil price plummeted below $ 30 a barrel. While crude oil has recovered to around $ 70 a barrel, many are still holding back after recovering from the painful downturn.

Together with European oil giants

Royal Dutch Shell

PLC,

BP

PLC and France

total
SA,

The five largest western companies will generate more than $ 90 billion in excess cash each year in 2018 and 2019, surpassing the record of 2008 with oil prices close to $ 150 per barrel.

But they pay less money to investors. According to FactSet, in 2008, the five companies generated approximately $ 85 billion in surplus, the highest ever, and repurchased shares worth more than $ 50 billion.

This year's surrender value should not exceed $ 12 billion% of free cash flow expected by analysts of the five companies. The demand for more cash reflects shareholders' skepticism about long-term oil and gas investments. As oil prices soared above $ 100 a barrel, many companies increased their spending by tens of billions of dollars and failed to boost production or earnings.

"Oil companies have spent the past decade like drunken sailors without making big profits," said Mark Stoeckle, chief executive of Adams Funds, which holds around $ 175 million in Exxon and Chevron shares. "Investors are now much more interested in exercising discipline and share buybacks."

Smaller oil and gas producers pay out a lot more and the shareholders reward them for it.

Anadarko Petroleum
Corp.

, which has a market capitalization of $ 37 billion, repurchased nearly $ 3 billion worth of stock from September to March

The company announced another $ 1 billion by June 2019. Including reinvested dividends, equities rose 62 percent last year, more than twice the average increase at large companies such as Exxon and Chevron.

ConocoPhillips

which has approved the repurchase of around 20% of its outstanding shares, rose 67% last year, including dividends. That's more than three times the profit of the S & P 500 Index.

Shell fell more than 3% on Thursday after earnings lagged behind expectations. The company announced a $ 25 billion repurchase by 2020, but some shareholders were disappointed that only $ 2 billion worth of shares will be repurchased in the next two months.

BP shares fell slightly on pre-trading Friday after the company announced it was spending $ 10.5 billion to buy most of the US shale business

BHP Billiton
Ltd.

BP returned to buy back shares last year to offset the dilution from its stock dividend program, but the company has not yet accepted a multi-billion share buyback program.

Exxon and Chevron, who jointly repurchased $ 15- $ 25 billion in stocks annually, as oil was sold for more than $ 100 a barrel before the crash, still need to return to large buyback programs.

"The market loves capital discipline and shareholder returns," said Kris Nichol, an analyst with consulting firm Wood Mackenzie Ltd. "The majors have held onto capital discipline so far, but they have not been at the forefront of shareholder returns."

Write to Bradley Olson in Bradley. Olson@wsj.com


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