Profits Up, As Chevron Outspends Exxon On Megaprojects

As big ticket spending gradually fades, cashflow should
blossom for America’s two oil giants.
Exxon Mobil XOM +2.39% and Chevron CVX +2.35% both announced third quarter results this morning.
Exxon posted net income of $8.1 billion, 2.5% higher in the quarter, with particularly strong results from U.S. upstream operations. That came despite production volumes continuing to  trend down 4.7% over the past year to 3.8 million barrels of oil and gas equivalents per day.
Chevron’s net for the quarter was $5.6 billion, up 13%, with all the increase coming from downstream operations. Chevron’s worldwide production was 2.57 million barrels of oil and gas
equivalents per day, down less than 1% over a year ago.
Arguably the most most interesting segment in the releases has to do with capital expenditures.
Exxon’s worldwide capex was down 7% for the quarter and 14% for the past nine months, to $28 billion. Capex in Exxon’s U.S. upstream has totalled $7 billion so far this year, same as in  2013, but non-U.S. upstream capex is down nearly 25% to $17 billion.
Chevron’s capex fell 11% on the quarter, but so far this year has totaled a whopping $29 billion — even higher than Exxon’s spending.
Edward Westlake, analyst with Credit Suisse, explained in a note this morning that Exxon’s capital spending is now entering a hiatus. From a peak of about $11 billion a year in 2012 (while  it was in the thick of building its Papua New Guinea LNG plant and the Kearl heavy oil project in Canada) mega-project spending will fall from about 30% of total capex to just under 5% by  2016. All else equal, that will free up several billion more in cash per year.
This downswing phase in the capex cycle is not isolated just to  Exxon, though Exxon is entering it first. ConocoPhillips  COP +1.12% and Occidental Petroleum OXY +1.14% will see  their spending fall in 2015, and Chevron in 2017.
Chevron’s biggest spending has been on its Australian LNG megaprojects at Gorgon and Wheatstone and in the deepwater Gulf of Mexico with Jack/St. Malo. Its international capex has totalled $21 billion so far this year.
FORBES NEWS.