Exxon Mobil and Chevron experienced a notable decline in first-quarter profits despite a surge in oil prices driven by the Iran war. Both energy giants, however, managed to outperform Wall Street’s earnings expectations.
The companies cited disruptions from the conflict and accounting impacts related to financial hedges as key factors influencing their results, even as their production segments showed resilience.
Exxon Mobil and Chevron, two of the titans of the American oil industry, have reported significant drops in first-quarter profits compared to the previous year, even as the escalating conflict in Iran sent oil prices soaring. Despite the turbulent geopolitical climate, both companies managed to surpass Wall Street's earnings expectations.
Exxon's net income saw a steep 45% decline, while Chevron experienced a 36% tumble in profits. This downturn occurred despite oil prices spiking by 57% following the joint U.S. and Israeli attacks on Iran in late February, an event that has been described as the most significant oil supply disruption in history. The conflict has particularly impacted the vital Strait of Hormuz shipping lane.
Exxon's CEO, Darren Woods, indicated that approximately 15% of the company's production is currently affected by the war. He warned that if the Strait of Hormuz remains closed throughout the second quarter, Exxon's Middle East production could decrease by a substantial 750,000 barrels per day, and its refining throughput could fall by 3%. Woods also noted that it could take up to two months for oil flows to normalize once the strait reopens, and an additional month for shipments to reach their destinations.
The financial impact on Exxon was further complicated by accounting adjustments related to its trading division. The company redeployed about 13 million barrels to regions most in need during the crisis. However, due to financial hedges put in place to secure profits on these barrels, the value of the shipments was not recognized in the quarter as they were still in transit. This resulted in a reported $4 billion loss stemming from a 'timing effect,' which Exxon expects to be offset by profits in subsequent quarters. Additionally, Exxon incurred a $700 million charge related to closed hedges not yet offset by physical deliveries.
Consequently, Exxon reported a net income of $4.2 billion, or $1.00 per share, a decrease from $7.7 billion, or $1.76 per share, in the prior year. Excluding the temporary accounting impacts, adjusted earnings were $8.8 billion, or $2.09 per share, with the hedge impact removed, it was $1.16 per share.
Chevron reported a first-quarter profit of $2.2 billion, or $1.11 per share, down from $3.5 billion, or $2 per share, year-over-year. The company also recorded a $2.9 billion charge related to its financial hedges. After these adjustments, Chevron's adjusted earnings came in at $1.41 per share, significantly exceeding Wall Street's consensus estimate of 95 cents per share, marking its best earnings beat since October 2020.
The refining segments of both companies faced challenges. Exxon's refiners posted a loss of $1.26 billion, largely due to the timing effects on financial hedges not matched by physical deliveries. Without these effects, Exxon's refiners would have shown a profit of $2.8 billion, a more than 200% increase from the previous year. Chevron's refiners swung to a loss of $817 million, a reversal from a $325 million profit in the same quarter last year, attributed to lower margins, hedge timing effects, and increased transportation costs.
On the production front, Exxon's segment yielded a profit of $5.74 billion, down 15% from the prior year, with production averaging 4.6 million barrels per day. Chevron's production segment saw a modest 4% increase in profit to $3.9 billion, producing approximately 3.9 million barrels per day, a 15% rise from the previous year.
