Exxon and Chevron Invest in Oil Ventures in the Americas

Exxon Mobil Corp. is experiencing a decrease in size on a global scale. XOM 1.01% Chevron Corporation saw a 0.66% change.

The two biggest oil companies in the United States are shifting their focus away from large-scale international oil projects and instead concentrating on a select few assets that are more profitable and located closer to home.

Chevron and Exxon have announced that the majority of their yearly budgets will be invested in the Americas. Chevron has stated that 70% of their production capital will be used in the U.S., Argentina, and Canada, while Exxon has declared that a similar portion of their budget will be spent in the Permian Basin of New Mexico and West Texas, Guyana, Brazil, and on liquefied natural-gas projects.

It is anticipated that the emphasis on the Western Hemisphere will persist for a long time as they prioritize increasing shareholder returns and reduce expensive exploratory drilling operations. This withdrawal from regions such as Southeast Asia, West Africa, Russia, and certain parts of Latin America—sometimes voluntarily, sometimes by force—signifies a period of contraction for companies that had spent many years establishing a presence in numerous countries around the globe.

Ben Cahill, a senior fellow at the Center for Strategic and International Studies in Washington, noted that there are not many instances of companies relocating to new countries. He explained that this is due to investors expecting higher returns, which has caused companies to become more selective.

For a long time, Chevron and Exxon have been searching the world for oil to add to their booked reserves, which is a factor that investors take into account when valuing them. This has often meant forming alliances with state-run companies to carry out the most difficult and expensive projects. According to Mr. Cahill, the emergence of U.S. shale has reduced the need for Western oil companies to worry about obtaining oil supplies. Additionally, a few years ago, shareholders revolted against the industry's excessive spending, leading to a decrease in their operations.

In 2019, Exxon, based in Irving, Texas, made its largest number of asset sales since 2018, with plans to sell or propose to sell assets in Chad, Cameroon, Egypt, Iraq, Nigeria, and some legacy assets in the U.S. and Canada. This was part of the company's plan since 2018 to divest at least $15 billion worth of assets, as it narrowed its global presence and concentrated on its most profitable holdings.

S&P Global Market Intelligence reported that the company's oil and gas production had decreased by almost 18% in 2021 compared to its peak in 2011. During that time, Exxon was managing a large number of projects around the world and was making most of its money outside the U.S. However, Neal Dingmann, an analyst at Truist Securities, noted that the days of managing numerous international projects are coming to an end.

Mr. Dingmann noted that investors are putting more pressure on companies than ever before, and it is essential that they focus on their core businesses and divest from any non-essential ones.

Chevron's global production decreased by 3% in the past year due to the termination of concessions in Thailand and Indonesia. In 2019, the company declared its intention to leave Myanmar in response to human rights abuses. Additionally, Chevron has sold off assets in Azerbaijan, Denmark, the UK, and Brazil, among other countries.

Chevron has kept some of its international assets close to home. Recently, the U.S. has given it permission to resume oil production in Venezuela after years of sanctions. The company has stated that it will not be making any new investments in the country, but will instead focus on maintaining its current assets and collecting debt from its state-run joint venture partner. If Chevron were to expand its operations in Venezuela, it would have to face a number of technical issues due to the aging oil fields and take on the political risk associated with the country.

Exxon and Chevron have both seen a decrease in their land holdings with active wells since 2010; Exxon's holdings were 18% smaller and Chevron's were 40% smaller, according to FactSet data. Despite the cost-cutting, both companies achieved record quarterly profits in 2020, and Wall Street analysts estimated that they were on track to have the highest profits since 2008.

In December, Exxon announced that it would be investing up to $25 billion annually through 2027, which is in line with its prior plans but lower than before the pandemic. The company also intends to increase oil and gas production by 500,000 barrels a day during that time. Additionally, Exxon is aiming to reduce costs by $9 billion by the end of 2021 compared to 2019. Chevron, on the other hand, has stated that it will be increasing its spending by 25% this year to $14 billion, which is much lower than its pre-pandemic budget.

In December, Chevron Chief Executive Mike Wirth expressed his belief that this strategy would be successful in regaining investors. After a period of time in which the energy sector had seen a lack of returns due to excessive spending, many generalist investors had left the sector. However, the energy segment of the S&P 500 had a much better year than the index as a whole, with a 59% increase in 2022 compared to the index's 19% decrease.

Despite the losses incurred in the past decade, many organizations are still hesitant to invest in oil companies, according to Kevin Holt, a portfolio manager at Invesco Ltd. The investment firm currently has approximately $1.44 trillion in assets under management, as stated in its most recent regulatory filings.

According to Mr. Holt, investors may need more time to be convinced that the oil industry has adopted a more disciplined approach to capital spending. He believes that it will take some time for this to become a permanent change.

Russia experienced a major shift away from foreign countries in the past year. The Kremlin terminated Exxon's involvement in an oil and gas project that had been in operation since the 1990s, after Exxon attempted to withdraw from the venture due to Russia's invasion of Ukraine.

Former Chief Executive Rex Tillerson had a plan to gain a foothold in Russia. However, according to Tatiana Mitrova, a research fellow at Columbia University’s Center on Global Energy Policy, there are few opportunities of that scale available in the oil industry's traditional oil and gas business.

Exxon and Chevron have announced their intention to expand into new ventures that will provide other companies with low-carbon technologies. This could open up opportunities for partnerships with countries and state-run companies that are not usually able to access these technologies, according to Ms. Mitrova.

She noted that the majors are in a great spot to create new technologies such as hydrogen and carbon capture that will assist the industry in reducing its carbon footprint.