Exxon and Chevron are earning billions and benefiting from the new tax law, but profits are falling short of expectations that were based on rising oil prices.
The shares of both companies fell in afternoon trading Friday.
Both U.S. oil giants were expected to get a boost from crude prices, which rose sharply in the fourth quarter.
Exxon’s production fell, however, by 3 percent from a year earlier, to about 4 million barrels of oil a day.
“This company just cannot get production growth going,” said Brian Youngberg, an analyst with Edward Jones. “They talk about all these (new) projects, but they’re always in the future. People want to start seeing some results.”
Net income soared to $8.38 billion in the fourth quarter, compared with $1.68 billion a year earlier. But $5.94 billion of the increase came from a one-time tax gain, as the new law with lower a lower corporate rate greatly reduced the company’s estimated tax liabilities.
Stripping away the tax gain and the write-down of operations in Canada and the Gulf of Mexico because of Exxon’s long-term forecast of natural gas prices, adjusted profit was 88 cents per share. Analysts surveyed by FactSet expected $1.03 per share.
Irving, Texas-based Exxon Mobil Corp. lost money on U.S. oil and gas production after excluding the tax gain. That’s an area where Exxon expects to grow this year from 26 drilling rigs to 36 in the Permian Basin of Texas and New Mexico and the Bakken field in North Dakota.
With higher crude prices, Exxon’s revenue rose 18 percent to $66.52 billion, but that was still well below the FactSet survey’s $71.94 billion.
Exxon spent $13 billion on dividends and buying back its own stock in 2017. Jeff Woodbury, vice president of investor relations, said buybacks would be limited in the first quarter of 2018.
Chevron Corp., based in San Ramon, California, earned $3.11 billion, two-thirds of it from the tax law. Excluding that gain, Chevron earned 73 cents per share, but FactSet says analysts expected adjusted earnings of $1.23 per share.
Chevron’s oil and gas production rose 5 percent, helping push revenue up by 19 percent to $37.62 billion, slightly higher than analysts expected.
UBS analyst Jon Rigby said Exxon misfired in all segments of its business while Chevron’s problems were concentrated in the refining and selling of petroleum products. Production at Chevron’s refineries was less than expected, and the company was more exposed to weak markets on the West Coast, he said.
Both companies are counting on higher production from U.S. shale formations to boost production and profits.
“They’re both targeting doubling their shale production over the next three or so years,” said Youngberg, the Edward Jones analyst. “The expectations are that the return for every dollar they invest will be stronger there than elsewhere.”
More drilling in the U.S. shale fields will also give their portfolios a better balance of big, risky long-term projects – often overseas – and ones with a quicker payoff.
In afternoon trading, Exxon shares fell $5.05, or 5.7 percent, to $84.02, while Chevron shares dropped $5.33, or 4.2 percent, to $120.24.