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00:00 Julie
Oil and gas giant Chevron and Exxon both reported earnings before the bell with both delivering their narrowest profits since 2021 as lower oil prices weigh on those producers. Stewart Glickman, CFRA Research and energy equity analyst and Deputy Research Director is joining me now. Um, Stewart, how in your assessment have these guys been coping amidst an environment of lower oil prices?
00:29 Stewart Glickman
Oh, hi Julie. Thanks for having me. So, yeah, it’s been really difficult, right? With the pricing headwinds that they’ve been facing, uh, Brent averaged about 64 bucks a barrel this quarter. It was 75 bucks a barrel in the year ago quarter. So, that’s an awful big percentage headwind to be facing. And what they’ve been doing is they’ve been trying to go after higher return, lower cost projects with better break events. Uh, and they’ve been trying to pull structural costs out of the system so that this is something that if, if, you know, oil prices remain kind of mediocre for a while, uh, they’ll, they’ll be in better position to be sustainable. Uh, so they, they made some headway on that front, but certainly earnings power degraded. Everyone expected that, but they still posted numbers that were a little better than expected.
01:21 Julie
And, um, on that front as well, of course, they’ve been spending. Um, and it’s not apples to apples when we’re talking about Exxon and Chevron. So I guess we should talk about them individually, but in terms of their spending plans, are, are you convinced of the return on that investment at this point for each of them?
01:40 Stewart Glickman
Yeah, it’s a fair question. So a couple of things on that front. Number one, both of these firms are planning not for 26, not for 27. They are making their their CAPEX plans based around, you know, what does the world look like in 2035, 2040. Uh, they’re looking down the road because I think they have a view and I think this is a correct view that oil demand is not peaking anytime soon. Um, a lot of the folks who, you know, 10, 15 years ago talked about looming peak demand have had to move back the goal posts on that because that proved to be not the case. Uh, so there is an argument for needing to prepare for future supply, uh, and some of these projects are multi-year projects to get to first oil and then to deliver, you know, you know, fairly low decline production growth, uh, in in in coming decades after that. So, um, I think it makes sense that they have to have somewhat aggressive production plans. Um, but you can scale that by figuring out where you want to where you want to attack, right? So, and and Exxon has talked about this that their so-called advantaged assets, uh, the the the projects that have relatively lower break even points, uh, they made up, I think it was almost 60% of production in 2025. Uh, and that’s likely to grow beyond 2030. So they’re doing what they can, but if they were to pull in the reins and really slash CAPEX, um, it might, it might make for better numbers in 26 and 27, but it would leave them exposed in a decade to come.
03:34 Julie
Um, and when you talk about how each of them is exposed and where they’re leverage, Venezuela is obviously a big sort of wild card. Chevron’s already got the operations there. Exxon has indicated they are leery of being there. Is that gonna be a big disadvantage for Exxon if they don’t get involved in Venezuela or is that sort of a blessing?
03:59 Stewart Glickman
So honestly, I think it’s a bit of a blessing. Um, I would say two things about Venezuela. Number one, yes, Chevron does have kind of an early mover advantage if they choose to go back in because they already have the JV there. Um, but all of these folks have long memories and it wasn’t that long ago that Exxon and Conoco and others had their assets expropriated. Uh, so that’s the first thing. So you want to be, you want to be first and foremost, you want to be have more certainty about the political environment. And while Maduro is no longer in Venezuela, the rest of his regime is still there. So we are far from, you know, approaching, I would say political stability in the country. And there’s a whole host of above ground problems that you have to solve before you can ever get to the below ground ones. Aside from the from the politics of it, um, there are issues around security. You’re not going to want to bring your people in, um, into the country without assurance that they can go to work, uh, and and and not have their their safety threatened, uh, by by folks loyal to the regime. Uh, and then lastly, you still have to work out, you know, some of the things that you and I take for granted like reliable electricity. Venezuela is notorious for lots of brown outs and blackouts. So those kinds of things have to be resolved before you’re ever going to move big dollars and big assets into the country. The second thing and I think this is maybe a little bit misunderstood, yes, Chevron has assets in country, mostly in the Lake Maracaibo region, uh, which is conventional oil, fairly low hanging fruit. They could probably eke out some more gains there, but not, I wouldn’t say game changing. Uh, whereas the bulk of the estimated proved reserves in country are in the Orinoco belt, which is heavy oil, tarry, very much like uh, the oil sands in Western Canada and the developing those kinds of assets or resources is probably a decade plus and tens of billions of dollars. So I I don’t see any way that either company is going to go heavily into the Orinoco without resolving all of those above ground things that I mentioned a second ago.
06:48 Julie
Yeah, a lot of challenges there. Stewart, thank you so much. Appreciate it.
06:53 Stewart Glickman
Thank you.