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US big two profits up on back of Permian surge

Chevron and ExxonMobil's output soars

US supermajors Chevron and ExxonMobil both reported significant second-quarter profits on surging production and growth in the Permian basin, though lower commodity prices and other factors weighed on results.

Chevron reported earnings of $4.3 billion for the quarter, up from $3.4 billion last year, boosted by a $740 million termination fee from its previously proposed merger with Anadarko.

Net production was 3.08 million barrels of oil equivalent per day in the three-month period, an increase of 9% from 2.83 million boepd year-on-year.

“Second-quarter earnings and cash flow benefited from record quarterly production volumes and the receipt of the Anadarko merger termination fee, partially offset by the impact of lower oil and gas prices,” chief executive Michael Wirth said.

“Net oil-equivalent production was the highest in the company's history, driven by continued growth in the Permian basin and at Wheatstone in Australia.”

ExxonMobil saw its profits shrink during the period as capital expenditure ramped up in the Permian basin, but output also soared as production in the shale powerhouse area made strides.

The US supermajor posted net profit of $3.13 billion in the three months to the end of June, well down on the $3.95 billion a year earlier.

Total production, however, soared 7% to 3.91 million barrels of oil equivalent per day from 3.65 million boepd.

“We continue to make significant progress toward delivering our long-term growth plans,” chief executive Darren Woods said.

ExxonMobil reaffirmed a final investment decision on the first phase of the Rovuma LNG development in Area 4 in Mozambique is set for this year, as well as confirming comments by partner Hess that resources on the Stabroek block off Guyana had been increased from 5.5 billion boe to more than 6 billion boe.

Both companies "posted strong upstream earnings above consensus estimates", Morgan Stanley said in a note, but "weaker refining and chemicals margins" weighed on results for each supermajor.

"Headwinds in both segments should continue, though disproportionately impacting ExxonMobil given greater exposure to these businesses."

Despite the bumps in the road, both companies also showed the potential the Permian can add even with companies on a supermajor scale, Tudor Pickering Holt said in a note.

"Despite some headwinds in overall financial results via refining & chemicals businesses, Q2’19 was a prime example of the ability for the Permian to drive outperformance in growth for even companies of ExxonMobil's size," the note said.

"Additionally, it was a prime display of the impact that ExxonMobil/Chevron growth trajectories within the Permian will have on the broader macro even as other independent E&Ps within the basin shift gears towards lower growth profiles."

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