Exxon Mobil Corp. and Chevron Corp. are plowing windfall profits into share buybacks as soaring energy prices boost cash flows.

Exxon will revive repurchases for the first time since 2016, spending as much as $10 billion from next year in a move that surprised analysts. Chevron is considering an expansion of its buyback program after surging natural gas prices and oil-refining returns drove free cash flow to an all-time high in the last quarter. Shares of both companies climbed.

The oil giants are using windfall profits to reward shareholders rather than ramp up spending on new drilling as was done during previous booms. That’s a blow to energy consumers around the world as supply shortages and price spikes spark inflation concerns. Both companies kept 2022 budgets within previously guided ranges. 

With commuting and air travel picking up, there’s “strong demand across our products with more recovery expected” during the current quarter, Chevron Chief Financial Officer Pierre Breber said in an interview. “We’re a better company than we were pre-Covid. Costs are down, production is up, and we’re much more capital efficient.”

Exxon earned $1.58 a share during the third quarter, compared with the $1.56 average estimate among analysts in a Bloomberg survey. Net income, excluding some one-time gains and losses, reached $6.8 billion, the most since 2014. 

Exxon rose 1.3% to $65.14 at 9:37 a.m. in New York, bringing the year-to-date advance to 58%. Chevron climbed 1.7%.

Another surprise was Exxon’s announcement of a fourfold increase in low-carbon investments just months after activist investor Engine No. 1 replaced a quarter of the oil giant’s board. Crucially, Exxon’s long-term capital budget is unchanged, indicating less cash available for fossil- fuel projects.

Chevron’s quarterly profit excluding one-time items was $2.96 per share, which surpassed every analyst estimate compiled by Bloomberg. Earnings were so strong that the company’s net-debt-to-capital ratio has fallen below its target of 20% to 25%, a key threshold that could spur an increase in stock repurchases beyond the current $2 billion to $3 billion a year range, Breber said. 

“We’re fast approaching a net-debt ratio where we could increase our buyback guidance range even further,” he said. 

Chevron reduced its full-year capital-budget target to $12 billion to $13 billion from $14 billion, citing pandemic-related project deferrals and reduced costs in the Permian Basin.

The oil explorer has thus far avoided the attentions of activist investors like those that have targeted Exxon and, more recently, Shell. Chevron Chief Executive Officer Mike Wirth is betting on a strategy of enriching shareholders and increasing production, while at the same time addressing climate concerns by lowering a controversial measure of carbon emissions.

Free cash flow of $6.7 billion in the quarter allowed Chevron to fund a dividend that’s among the top 10 in the S&P 500 Index, and reduce debt. But the company bought back just $625 million of shares in the period, the mid-point of its targeted range.

Chevron shares rose as much as 2.3% in pre-market trading in New York while Exxon gained as much as 1.6%.

What Bloomberg Intelligence Says

“Focus shifts to growth, with Exxon betting on Guyana, the Permian and downstream to carry the load over the next two years. ESG pressures may shift future spending. In light of its massive $15 billion annual dividend, we believe asset sales and a lower debt load would be needed if Exxon turns toward greener investments.”

—Fernando Valle, senior energy analyst, and Brett Gibbs, associate analyst

A big reason why oil supermajors are generating record cash flow is because of deep budget cuts made during the pandemic-driven oil-market collapse of last year. Chevron’s year-to-date spending was 22% lower than the year-earlier period. 

But with record natural gas prices in Europe and Asia, and robust crude prices everywhere, there are growing incentives to increase investments in fossil fuels.