The "money printing machine" of oil giants has stopped

On the morning of April 27th, the closing price of the May NYMEX natural gas futures in the United States was reported at $1.614 per million British thermal units, hitting the lowest level since August 1995.

The reason behind this is the reduced demand for natural gas in the market due to the warm winter weather in the United States. At the same time, the high crude oil prices have led to active drilling activities. During the process of drilling for oil, natural gas is usually produced as a by-product, resulting in an oversupply of natural gas and further depressing its price.

Additionally, due to the dual pressures of declining refining margins and falling natural gas prices, global oil giants ExxonMobil and Chevron both reported a decline in profits in the first quarter.

ExxonMobil and Chevron Q1 Profits Decline

On Friday, the largest oil company in the United States, ExxonMobil, announced its first-quarter performance. The data shows that in Q1, the operating income was $83.08 billion, exceeding the market's expected $78.35 billion but lower than the $86.56 billion in the same period last year.

Net profit fell by 28% year-on-year to $8.2 billion, below analysts' expectations. Earnings per share were $2.06, lower than the expected $2.20 per share. Despite the decline in performance, this is still the second-highest first-quarter profit in the past decade.

Following the earnings report falling short of expectations, ExxonMobil's stock price fell by over 3% on Friday.

Additionally, Chevron's net profit fell by 16% year-on-year to $5.5 billion. However, as profits exceeded analysts' expectations by about 2%, Chevron's stock price rose by approximately 0.37%.

Chevron and ExxonMobil attribute the decline in profits mainly to the fall in natural gas prices and the compression of refining margins. Although ExxonMobil and Chevron's stocks have risen by about 15% and 11% respectively this year, investors are skeptical about the ability of energy stocks to sustain high profit levels in the future. Some analysts point out that Wall Street's interest in the energy sector has only slightly increased, and investors are cautious about investing heavily in energy stocks.

Firstly, the energy sector still accounts for a small proportion of the S&P 500 index, currently only about 4%. This indicates that despite the recent strong performance of energy stocks, their influence in the overall market is limited.

Secondly, the largest oil wells in the United States are shrinking, with U.S. companies having drilled through most of the best oil wells, showing signs of a peak in U.S. shale oil prosperity.

Furthermore, RBC Capital Markets analyst Biraj Borkhataria pointed out that one of the major concerns facing the energy industry (especially the traditional oil and gas sectors) is being seen as a "sunset industry" As the world is undergoing an energy transition, shifting from reliance on fossil fuels to more renewable energy sources such as wind and solar power, many Wall Street analysts are concerned about the declining role of fossil fuels in future energy consumption. In the long term, the transition away from fossil fuels poses a threat to oil giants. Therefore, investors have some concerns about long-term investments in the energy sector.

Oil giants are striving to increase oil and gas production, increase dividends, and engage in share buybacks

Over the past two years, with the rise in global energy prices, global oil giants ExxonMobil and Chevron have also seen their profits soar, achieving record-high profits and dividends. They have become among the most profitable companies in the United States.

At the same time, the rise in oil prices has also brought about high inflation issues, diluting national wealth. Investors have been flocking to energy company stocks as hedging tools. A large amount of funds flowing into energy stocks has made the energy sector outperform almost all other industries in the S&P 500 index.

Oil companies are making a fortune, and their stock prices are reaching historic highs. It's a frenzy in the energy industry. For example, this year, oil prices have risen by about 17%, directly driving ExxonMobil's stock price to reach a historic high in April, surpassing Tesla's market value.

However, the market environment is changing, and external favorable factors for the energy industry are gradually weakening. On the one hand, since the Russia-Ukraine conflict, global oil and natural gas prices have been more stable than before. On the other hand, natural gas prices in the United States have been continuously falling since the peak of the COVID-19 pandemic, continuously squeezing the profits of the energy industry.

Analysts point out that to maintain high profit levels, ExxonMobil faces increased operational difficulties and needs to focus more on cost control and improving production efficiency.

Facing declining profits, both ExxonMobil and Chevron have taken a series of measures to enhance their profitability. These measures mainly include strategic investments (increasing oil and gas production and refining capacity) and financial operations (such as share buybacks and increasing dividends) to offset the revenue losses caused by price declines and narrowing profit margins, and seek new growth opportunities.

For example, Guyana is a bright spot for ExxonMobil. The company has discovered a large amount of oil reserves here, making it one of the largest oil fields in modern times. This discovery provides the company with growth opportunities and may provide a stable source of income and profits in the coming years.

ExxonMobil CEO Darren Woods referred to it as "one of the best deepwater developments in industry history" and stated:

"ExxonMobil's development project in Guyana has made significant progress, with a daily production of 600,000 barrels. The project went from start-up to full production in just 2 months, far faster than the industry standard of 15 months. The company is making good progress to enhance the profitability of its existing business."

Meanwhile, Chevron reported that its global production increased by 12% compared to the same period last year, benefiting from the acquisition of PDC Energy and operational enhancements in U.S. shale and Kazakhstan. It has launched a major upgrade project in the Tengiz oil field in Kazakhstan. The start of this project helps alleviate investors' concerns about previous delays and cost overruns in the region Borkhataria mentioned that one of the simplest strategies for energy companies is to continue repurchasing their own stocks. This practice can enhance shareholder returns in the short term by boosting earnings per share, potentially leading to an increase in stock price. Furthermore, the funds saved through stock repurchases can be used to increase dividend payments, which is also a way to attract and retain investors.

For example, ExxonMobil continues to prioritize returns to shareholders. The company paid more cash to shareholders this quarter than it spent on new projects. Specifically, ExxonMobil reduced capital spending by 8.5% compared to the same period last year, while increasing dividends and stock buybacks, totaling $6.8 billion.

Moreover, some analysts point out that natural gas futures prices are expected to rebound soon. On one hand, with the arrival of summer, households and businesses start using air conditioning, leading to an expected seasonal increase in natural gas demand. On the other hand, drilling companies have begun reducing natural gas production to balance market supply and demand