With massive market caps of $256.1 billion and $210.3 billion, Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) dominate the energy sector. Both the companies’ businesses are primarily guided by oil and natural gas prices. However, there are some key factors need to be analyzed elaborately before ranking the two integrated energy firms.
ExxonMobil and Chevron are among the leading integrated energy players with strong presence in upstream and downstream operations.
The company has upstream presence in the United States and abroad. Apart from operations in the most prolific domestic play – Permian – ExxonMobil’s upstream portfolio includes Guyana and Brazil. In the Permian, the company plans to produce more than 1,000 thousand oil equivalent barrels per day (KoEB/D) by 2024.
Moreover, with 16 discoveries in the Stabroek Block, located off the coast of Guyana, ExxonMobil has estimated gross recoverable resources of more than 8 billion barrels of oil equivalent. In fact, the leading integrated energy player estimates 750,000 barrels of oil production per day from the offshore region by 2025. Other major energy players having interests in the Stabroek Block are Hess Corporation (HES - Free Report) and CNOOC Limited (CEO - Free Report) . Additionally, in Brazil, the company has more than 2.3 million net acres of upstream resources.
ExxonMobil also has a strong downstream presence with interests in more than 20 refineries across the world. Notably, the company has estimated its total refining capacity at 4.7 million barrels of oil per day.
The company’s core upstream assets comprise Permian and Deepwater Gulf of Mexico along with resources in Australia, Kazakhstan and Nigeria. In Permian, Chevron has 16.2 billon barrel of oil equivalent (BBoE) resources as of 2019-end, significantly up from 9.3 BBoE in 2017. Moreover, majority of the company’s refining capacity is located in the United States, while the rest is in Asia.
Both Are Dividend Aristocrats
If a company raises dividend for at least 25 successive years, it gets the status of dividend aristocrat. ExxonMobil has successfully managed to grow dividend payments over the past 37 years at an average annual growth rate of 6.2%. Meanwhile, Chevron has hiked dividend payments for 33 straight years.
Not only are these integrated energy players dividend aristocrats, the firms pay higher dividend yields than the Zacks S&P 500 composite. Currently, the dividend yield for ExxonMobil and Chevron is a respective 5.75% and 4.28%, way higher than the Zacks S&P 500 composite’s 1.68%.
Although it seems that dividend investors might choose ExxonMobil over Chevron for more than one percentage difference in their yields, the question lies with sustainability considering ExxonMobil’s aggressive capital spending plans.
Chevron’s Edge Over ExxonMobil
ExxonMobil has an aggressive capital spending program in place as compared to Chevron. In 2020, ExxonMobil is planning to invest $33 to $35 billion, while $30 to $35 billion will likely be allocated from 2021 through 2025. Chevron, in comparison, is planning to spend $18 to $20 billion in 2020. From 2021 through 2023, Chevron is planning to allocate $19 to $22 billion capital.
While ExxonMobil intends to invest heavily in coming years, this might require the company to divest assets and rely more on debt funding. This could weaken ExxonMobil’s balance sheet and lower the company’s free cashflow that will be available for dividend payments. This has probably justified the question of the company’s sustainability of paying higher dividend yields than Chevron.
Importantly, investors are constantly pressing companies to focus more on returns rather than solely on production. Hence, ExxonMobil’s aggressive capital spending program, mostly for oil and natural gas production, might have disappointed investors.
However, though Chevron has a conservative capital program in place, it is projecting compound annual production growth rate of 3-4% in five years, reflecting strong operational efficiencies. In case of the Zacks Rank as well, Chevron has a clear lead with a Zacks Rank #2 (Buy) while ExxonMobil carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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