ExxonMobil, Chevron set sights on more oil & gas along with low-carbon and new energies
Two U.S. energy giants, ExxonMobil and Chevron, have disclosed their capital investment expectations, encompassing oil and gas plays, which go shoulder to shoulder with emission-reduction solutions, as these oil majors are no strangers to the uncertainly that surrounds the energy transition and low-carbon landscape. As a result, they are taking a shot at chasing more hydrocarbons alongside decarbonization.
While climate action heats up at COP28, many new decarbonization efforts are springing up to slash emissions from the energy sector, with recent signs indicating that the final text of the climate talks is heading towards a showdown on the question of phasing out fossil fuels. There is no doubt that throwing a commitment to exit the fossil fuels age into the final agreement at COP28 is no small feat, especially in the light of Sultan Al-Jaber’s remarks that limiting warming to 1.5°C does not necessarily require phasing out fossil fuels.
While some may not be on the same page as the COP28 President when it comes to fossil energy, as they do not think that ending oil, gas, and coal production would send humanity back to the Stone Age, the energy crisis has pushed countries into putting all energy sources at their disposal to good use to avoid a new supply crunch down the road.
Well-versed in the nuances of the current energy ecosystem, ExxonMobil’s Chairman and CEO, Darren Woods, said at the APEC Summit in San Francisco last month that the plan to tackle climate change and energy demands would need to go beyond expanding wind, solar, and EVs. According to ExxonMobil’s CEO, the world needs to commit to solving its “energy and emissions challenges simultaneously” to bridge the global North-South divide.
Woods also stated that the problem was not oil and gas but emissions, echoing Kevin Gallagher, Santos’ Managing Director and Chief Executive Officer, who underscored that “the climate enemy is emissions, not fossil fuels” while addressing a WA Energy Club luncheon in Perth, Western Australia.
ExxonMobil steps up its low-carbon game with over $20 billion
Based on ExxonMobil’s updated corporate plan through 2027, the company is intent on continuing the execution of its strategy to provide the energy products the world needs and to lower not just its own emissions but also those of others. The U.S. player highlights that the execution of its strategy has increased the earnings power of the corporation, adding about $10 billion to its annual earnings and cash flow at a real Brent price of $60 per barrel since 2019.
For the oil major, these improvements provide “a strong foundation” to further grow annual earnings and cash flow by $14 billion from year-end 2023 through 2027, as it continues to reduce structural costs and improve the mix of its business by growing production from low-cost-of-supply, advantaged assets and increasing sales of high-value performance chemicals, lower-emission fuels, and performance lubricants.
“By any measure, our plans have and will continue to deliver exceptional value. We remain committed to providing the energy and products that raise living standards around the world while building a new business to reduce emissions in hard-to-decarbonize parts of the economy. ExxonMobil is uniquely equipped to do both, and we’re confident that both present significant opportunities for profitable growth,” underlined Woods.
ExxonMobil plans to deliver $6 billion in additional structural cost reductions by year-end 2027, bringing the total structural cost savings to approximately $15 billion versus 2019, while Upstream earnings potential is on track to more than double by 2027 versus 2019, resulting from investments in high-return, low-cost-of-supply projects. Over the next five years, approximately 90% of the firm’s planned Upstream capital investments in new oil and flowing gas production are expected to generate returns greater than 10% at a Brent price of $35/bbl.
In line with its decarbonization agenda, the U.S. giant has made inroads in executing its plan to reduce Upstream operated greenhouse gas emissions intensity by 40% to 50% by 2030, compared with 2016 levels, having already achieved approximately half of this planned reduction. The firm expects oil and gas production in 2024 to be about 3.8 million oil-equivalent barrels per day, rising to about 4.2 million oil-equivalent barrels per day by 2027, driven by growth in the Permian and Guyana.
ExxonMobil now anticipates total annual capital expenditures and exploration expenses of $23 billion to $25 billion in 2024 and $22 billion to $27 billion annually from 2025 through 2027, generating an average return of approximately 30%. Greater than 90% of the capex has payback periods of less than ten years. The company points out that the increase in capex from 2025 is driven by the growth in Low Carbon Solutions’ opportunities to reduce emissions.
The U.S. oil major remains on track to complete $17.5 billion in share repurchases in 2023 as part of the $35 billion repurchase program previously announced for 2023 and 2024. After the Pioneer merger closes, the go-forward pace of the program in 2024 will be increased to $20 billion annually through 2025, assuming reasonable market conditions.
Furthermore, ExxonMobil is pursuing more than $20 billion of lower-emissions opportunities through 2027, which represents the third increase in the last three years, from an initial $3 billion in projects identified in early 2021. This is in addition to the company’s recent $5 billion all-stock acquisition of Denbury, which expanded carbon capture and storage (CCS) opportunities through access to what is said to be the largest CO2 pipeline network in the United States.
The U.S. oil major is building a portfolio of assets, covering opportunities in lithium, hydrogen, biofuels, and carbon capture and storage, which in aggregate are expected to generate returns of approximately 15% and could reduce third-party emissions by more than 50 Mta by 2030. These lower emissions solutions are anticipated to help address climate change. Approximately 50% of the planned investments support building ExxonMobil’s Low Carbon Solutions business, which aims to reduce its customers’ greenhouse gas emissions.
“We continue to see more opportunities to harness our technology, scale, and capabilities to implement real solutions to lower emissions and to profitably grow our Low Carbon Solutions business,” added Woods. “Success in accelerating emission reductions requires the development of nascent markets. We need technology-neutral durable policy support, transparent carbon pricing and accounting, and ultimately, customer commitments to support increased investment. We’re actively advocating for each of these areas so we can grow a profitable, and ultimately large, low-carbon business.”
The balance of the company’s low-carbon capital is planned to be used to curb emissions in support of its 2030 emission reduction plans and its 2050 Scope 1 and 2 net-zero ambition. In the Permian Basin, the firm is on track to reach net-zero emissions for unconventional operations by 2030 and expects to leverage its Permian greenhouse gas reduction plans to accelerate Pioneer’s net-zero ambition by 15 years, to 2035 from 2050.
“The company recognizes the significant uncertainty in how the energy transition and its low-carbon business will develop and expects to pace emissions-reduction investments, effectively allocating resources as markets, customer commitments, and policy evolve. This minimizes the downside risks while establishing an advantaged position to capture and maximize the upside potential,” emphasized ExxonMobil.
Chevron earmarks $16 billion for 2024 investment plays
ExxonMobil’s peer, Chevron, revealed an expected organic capital expenditure range of $15.5 to $16.5 billion for consolidated subsidiaries (capex) and an affiliate capital expenditure (affiliate capex) budget of approximately $3 billion for 2024. The U.S. player’s Upstream spending in 2024 is expected to be about $14 billion, with two-thirds allocated to the United States, including around $6.5 billion to develop its U.S. shale and tight portfolio, of which around $5 billion is planned for Permian Basin development.
In addition, about 25% of U.S. upstream capex is planned for projects in the Gulf of Mexico, including the Anchor project, which is slated to achieve its first oil in 2024. The company’s Downstream capex is expected to be roughly $1.5 billion, with 80% allocated to the United States while corporate and other capex is projected to be about $0.5 billion. Approximately $2 billion in lower carbon capex is thrown into the upstream and downstream budgets to lower the carbon intensity of traditional operations and grow new energy business lines.
Moreover, Chevron’s Geismar renewable diesel expansion project is expected to start in 2024 while nearly half of affiliate capex is planned for Tengizchevroil’s FGP/WPMP project in Kazakhstan, and about a third is planned for Chevron Phillips Chemical Company, including the Golden Triangle Polymer Project and Ras Laffan Petrochemical Project. WPMP field conversion is forecasted to begin start-up in the first half of 2024.
On October 23, 2023, the U.S. oil major revealed a deal to acquire Hess Corporation, which should close in the first half of 2024, subject to Hess shareholder approval, regulatory approvals, and other customary closing conditions. Following the closing of the acquisition, Chevron’s annual capex budget is expected to be between $19 and $22 billion.
Mike Wirth, Chevron Chairman and CEO, commented: “We’re maintaining capital discipline in both traditional and new energies. These investments are expected to underpin durable free cash flow growth to support our objective of returning more cash to shareholders.”