Exxon Mobil Corp. on Friday pledged to revive its long-dormant share repurchase program next year, bolstered by a jump in profit and improved cash flow in the third quarter as rising global economic activity has caused fossil fuel demand to surge.
The higher profit follows several years of lackluster returns and heavy cost-cuts for Exxon, and as agitated shareholders this year voted to put three new directors on the company’s board because of dissatisfaction with its direction.
Exxon’s announcement that it will resume share buybacks returns it to the strategy it pursued for more than a decade, as it was once the largest U.S. corporate repurchaser of shares before suspending the practice in 2016.
The nation’s largest oil and gas company reported net income of US$6.75-billion, or US$1.57 per share, in the third quarter, the highest since the last quarter of 2017. That compared to a loss of US$680-million, or 15 cents per share, in the year-earlier period.
Exxon’s adjusted profit of US$1.58 a share beat the Refinitiv estimate by two cents, with results lifted by oil and gas prices that have more than doubled in the past year.
Third-quarter results reflected the highest refining profit in at least two years, soaring natural gas prices and energy shortages that pushed oil to a three-year high. Crude prices have continued to climb to near a seven-year high.
Exxon shares were up 0.8 per cent to US$64.83 in early afternoon trading.
The company’s three businesses delivered higher returns from past cost-cutting restructurings and as the global economy emerges from the coronavirus pandemic, chief executive officer Darren Woods said.
The benefits of those changes “are manifesting themselves,” Mr. Woods told analysts on a conference call, adding that Exxon expects to “deliver the same growth in earnings and cash flow as our pre-pandemic plans” for US$30-billion in annual profit by 2025.
Its cash-flow outlook will allow the company to resume share buybacks starting next year under a plan to spend up to US$10-billion on repurchases through 2023, Exxon said.
“The macro winds are at Exxon’s back, with strong pricing upstream, strong demand downstream, and chemicals margins that, while no longer peak, are still fairly strong,” said Stewart Glickman, energy equity analyst at CFRA Research.
CARBON EMISSIONS CUTS
In 2016, Exxon cut its share repurchases amid weak results, saying it would buy back shares only to offset dilution from executive pay plans as opposed to returning cash to shareholders.
In the decade prior, Exxon spent US$210-billion to buy back its own stock, more than any other U.S. company in that period.
A day after Exxon’s Mr. Woods appeared before Congress to address the company’s previous dismissal of global warming, Exxon said it plans to spend US$15-billion to cut its carbon emissions between 2022 and 2027.
Profits in oil and gas soared in the third quarter on the strength of international demand, reaching nearly US$4-billion compared with a US$383-million loss a year ago. Chemical profits slipped from last quarter’s high but more than tripled from the same period last year.
The company said it will benefit in the fourth quarter from higher oil and gas volumes, increased European seasonal gas demand and the US$1-billion sale of its UK North Sea assets.
Exxon shares are up than 50 per cent this year, as earnings bounced back from last year’s historic loss, but remain below where they traded in early 2020. This year’s profit has allowed the company to repay about US$11-billion in debt taken on last year to cover its dividend.
Earlier this year, Exxon spent heavily on a proxy battle waged by a small hedge fund unhappy with the oil and gas company’s strategy. The fund, Engine No. 1, was successful in convincing enough shareholders to vote for three new directors to serve on Exxon’s board.
“Results show the company’s renewed confidence in its business by being able to spend significantly more next year, spend more on low-carbon solutions while raising the dividend and starting to buy back stock,” said Anish Kapadia, director of energy at Palissy Advisors.
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