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Capex Goals from Chevron & ExxonMobil Dominate Oil & Gas Stock Roundup

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It was a week when both oil and natural gas prices registered declines.

On the headline front, U.S. energy majors Chevron (CVX - Free Report) and ExxonMobil (XOM - Free Report) offered a glimpse of their capital spending plans. News related to Royal Dutch Shell , Chesapeake Energy (CHK - Free Report) and Murphy USA (MUSA - Free Report) also made it to the top stories.

Overall, it was a bearish seven-day period for the sector. West Texas Intermediate (WTI) crude futures lost 2.8% to close at $66.26 per barrel, while natural gas prices fell almost 25% to end at $4.132 per million British thermal units (MMBtu). In particular, the oil market extended its decline from the previous five weeks.

Coming back to the week ended Dec 3, oil prices dipped after a report from the Energy Information Administration ("EIA") showed a higher-than-expected build-up in fuel inventories. The jitters associated with the proliferation of the Omicron variant, which spurred a flurry of renewed curbs by governments to check its spread (posing a risk to consumption), also contributed to this bearish price action.  

Meanwhile, natural gas notched a substantial weekly loss, hurt by weather forecasts indicating above-normal temperatures over most of the country in the coming days.

Recap of the Week’s Most-Important Stories

1.  Chevron has pegged its capital and exploratory budget at $15 billion — at the low end of its previous estimation of $15-$17 billion but up 20% from the midpoint of its revised 2021 guidance range of $12-$13 billion.

Of the American multinational's total 2022 capital expenditure, 84% is planned to be incurred in its upstream operations that produce oil and gas. In particular, Chevron is concentrating on its investment in U.S. shale production next year. For 2022, the company intends to spend $4.5 billion on shale, the lion's share (or $3 billion) going to the lucrative Permian Basin of Texas and New Mexico alone.

The remaining $1.5 billion has been set aside for other shale investments worldwide. Overall, the oil giant plans to shell out $6.4 billion for its domestic upstream operations. An additional $6.2 billion will target international upstream projects.

Chevron has allocated $3 billion for projects already underway, of which some $2 billion has been dedicated to the Tengiz field in Kazakhstan — the only large capital project the company is committed to, following completion of its Australian LNG projects (Gorgon and Wheatstone). (Chevron Unveils 2022 Capex, Boosts Share Repurchase)

2.   ExxonMobil announced its intention to spend $15 billion over the next six years on projects associated with reducing greenhouse gas emissions. With the investment target, XOM will be cutting its emissions of greenhouse gases across its operations as well as increasing spending in businesses related to low carbon solutions.

The integrated energy major boasts that it is on track to meet its 2025 plan of reducing greenhouse gas emissions as early as the end of this year. Hence, it’s four years ahead of schedule that as compared to 2016 levels, ExxonMobil will cut its greenhouse gas intensity from upstream operations by 15% to 20%. The aggressive plan will also be followed by cutting methane intensity and flaring intensity by 40% to 50% and 35% to 45%, respectively.

ExxonMobil has also set a plan of reducing corporate-wide greenhouse gas emissions by 20% to 30% by 2030. From the upstream operations, XOM plans to lower greenhouse gas emissions by 40% to 50% over the same time frame. For cutting methane emissions and flaring intensity across its corporate activities, ExxonMobil has set an aggressive 2030 reduction plan of 70% to 80% and 60% to 70%, respectively. (ExxonMobil Sets Plans to Cut Greenhouse Gas Emissions)

3   Royal Dutch Shell announced the completion of the sale of all its assets in the Permian, the most prolific basin in the United States. The divesture worth $9.5 billion, announced in September 2021, involves Shell's 225,000 net Permian acres with current production of nearly 175,000 barrels of oil equivalent per day. The divested assets involve 600 miles of operated oil, natural gas, water pipelines and other energy infrastructure.

For Shell, the asset sale was a more attractive option for its shareholders instead of acquiring additional assets to boost its Permian footprint. RDS.A planned to use the cash proceeds from the transaction to fund $7 billion of additional shareholder distributions, most likely through share repurchases. The distributions were expected in addition to RDS.A's shareholder distributions of 20-30% of cash flow from operations. The remaining amount was intended to be used in strengthening RDS.A's balance sheet.

With the closure of the Permian asset divestment, management announced that it will buy back up to $1.5 billion of shares from Dec 2, 2021 to Jan 28, 2022. This will be the first installment of the $7-billion dividends due to its shareholders following the sale of Shell's Permian operation. In early 2022, the form and the date for releasing the remaining $5.5 billion will be disclosed. (Shell Ends Permian Asset Sale, Begins Stock Buyback)

4.   Chesapeake Energy announced authorizations from its board of directors to buy back up to $1 billion in aggregate value of its common stock and warrants. CHK added that the stock repurchases would occur from time to time over the next two years.

The addition of the repurchase program reflects Zacks Rank #1 (Strong Buy) Chesapeake Energy’s strong commitment to returning capital to stockholders, backed by a sound and resilient business model that could sustain its current cashflow over the long term. CHK’s sound business model is being backed by the ability to sail through commodity price volatility, disciplined capital allocation strategy and a pledge of sustaining capital reinvestment rate.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Chesapeake Energy boasted that its projections for cashflows are robust, although commodity prices have been volatile. The company expects to reward stockholders with total cash dividend payment of $800 million to $1 billion next year. The projected dividend combines a base dividend of $1.75 per share and a variable dividend of 50% of free cash flow. Looking at the dividend history, Chesapeake Energy recently increased its quarterly base dividend payment by 27%. (Chesapeake's Board Authorizes $1B Stock Repurchase)

5.   Murphy USA's board recently approved a new share repurchase authorization of up to $1 billion, which will commence once the existing $500-million authorization expires and be completed by Dec 31, 2026. The move underscores MUSA’s sound financial position and commitment to reward its shareholders.

MUSA remains committed to returning excess cash to its shareholders through continued share buyback programs. As part of this initiative, the fuel retailer repurchased $399.6 million of its common stock through 2020. For the record, over the past five years, management has returned around $950 million to its shareholders in the form of stock buybacks.

Murphy USA is happy to reconfirm its wealth creation formula on strong operational performance and capacity to produce free cash flow. This El Dorado, AR-based energy firm is on course to complete its previously announced $500 million program, roughly two years ahead of schedule.

So, the latest authorization lends a competitive edge to its business model and instills investor confidence in the stock. This timeline gives management more freedom over a five-year period to emphasize high-impact organic development while allowing for execution flexibility and cautious liquidity preservation. (Murphy USA Adds Shareholder Value With $1B Buyback Plan)

Price Performance

The following table shows the price movement of some major oil and gas players over the past week and during the last six months.

Company    Last Week    Last 6 Months

XOM              -0.6%                 -0.9%
CVX               -0.1%                 +5.5%
COP              -0.5%                 +18.8%
OXY               -1.8%                 +0.1%
SLB               -1.1%                 -19.7%
RIG                -6%                    -33%
VLO               +2.5%                -16.3%
MPC              +0.5%                -3.1%

The Energy Select Sector SPDR — a popular way to track energy companies — edged down 0.8% last week. But over the past six months, the sector tracker has increased 1.1%.

What’s Next in the Energy World?

As the global oil consumption outlook strengthens amid tightening fundamentals, market participants will closely track the regular releases to watch for signs that could further validate the upward momentum. In this context, the U.S. government’s statistics on oil and natural gas — one of the few solid indicators that come out regularly — will be on energy traders' radar.

Data on rig count from the oilfield service firm Baker Hughes, which is a pointer to trends in U.S. crude production, is closely followed too. News related to coronavirus vaccine approval/rollout/distribution will be of utmost importance. Last but not least, investors will keep an eye on the potential demand hit from the Omicron variant.