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Exxon plans no ‘huge shifts in strategy’ after losing board fight

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ExxonMobil does not plan “huge shifts in strategy” after losing a hard-fought shareholder vote to a hedge fund that had pushed the oil supermajor to better prepare for a future of cleaner fuels, its chief executive said as he reported financial results bolstered by higher crude and chemicals prices.

Exxon’s $4.7bn second-quarter net profit, the biggest quarterly earnings in more than two years, easily beat Wall Street expectations and contrasted with a $1bn loss in the same quarter last year. Profit at rival US major Chevron also beat forecasts at $3.1bn, a sharp reversal from an $8.3bn loss a year before.

Darren Woods, Exxon chief executive, said demand had increased because of the global economic recovery from the pandemic, which has revived travel and industrial activity. Exxon reported the best-ever quarter for its chemical and lubricants business.

The strong earnings come weeks after the companies lost closely watched, climate-focused shareholder votes. At Exxon, the tiny hedge fund Engine No 1 won three seats on the board after a campaign that claimed that its focus on fossil fuels put it at “existential risk”.

Woods told analysts “the time is right” to step up the company’s low-carbon efforts given the “growing recognition of the importance of carbon capture and storage, hydrogen and biofuels by both governments and investors”.

But he said that the shareholder vote defeat was not likely to herald “huge shifts in strategy”. The company could make “additional emphasis” in areas where it has already been focused, such as carbon capture and hydrogen. Woods noted potential new carbon capture projects, including in Wyoming and the port of Rotterdam, but warned that it would take time to “get steel in the ground”.

Chevron said on Thursday that it was setting up a “new energies” business line to be headed by Jeff Gustavson, a company veteran who is moving into the role from Chevron’s shale drilling unit, which will focus on hydrogen, carbon capture and carbon offsets. ExxonMobil set up a low-carbon business earlier this year.

Chevron said the $5.2bn in free cash flow it generated in the quarter would allow it to start buying back $2bn to $3bn in shares a year, a move that came earlier than expected and is seen as crucial to winning back investors after last year’s collapse. The company held its dividend steady at $1.34 a share.

“Our free cash flow was the highest in two years due to solid operational and financial performance and lower capital spending,” said Mike Wirth, Chevron’s chief executive. “We will resume share repurchases in the third quarter.”

Exxon did not reinstate a share buyback scheme but instead focused on paying down debt, which ballooned during last year’s crisis.

Exxon shares were down more than 2 per cent amid a broader decline in the US stock market. Chevron shares fell about 1.4 per cent.

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The bumper quarter followed similarly strong profits reported by the European oil majors. They also took steps to woo back investors, with Royal Dutch Shell, TotalEnergies and Eni all lifting shareholder payouts this week. Ben van Beurden, Shell chief executive, said the move signalled an “element of confidence”.

Crude oil prices have surged to more than $70 a barrel in recent months as demand has picked up, boosting energy company share prices. Yet last year’s market collapse and long-term doubts about oil and gas demand as governments try to shift to cleaner fuels are weighing on Exxon and other leading producers.

Exxon’s shares are up more than 40 per cent this year, outpacing the broader market, but are trading about 30 per cent lower than the last time oil prices were at current levels, in late 2018.

While profits surged, both Exxon and Chevron have kept tight reins on capital spending after shareholders demanded that they focus on returning cash to investors rather than investing in new supply.

Exxon’s spending was about a third lower in the first half of this year compared to last year, and it said it expected total spending in 2021 to come in at “the lower range” of its $16bn to $19bn target. Chevron reduced its 2021 spending target to $13bn, from $14bn.

This story has been amended to correct the size of Exxon’s quarterly net profit in comparison to previous quarters

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