Exxon, Chevron Earnings: Analysts Eye Oil Giants' Free Cash Flows

As the energy sector braces for another year of volatile oil prices, investors are closely watching the free cash flows (FCF) of major oil companies like ExxonMobil (XOM) and Chevron (CVX). These two oil giants recently reported their earnings, and analysts are already eyeing their FCF to gauge their financial health and potential for dividend growth.

ExxonMobil reported fourth-quarter earnings of $7.6 billion, or $1.72 per share, beating analyst expectations. The company's upstream earnings rose by $340 million from the third quarter to $6.5 billion in Q4, driven by record production in Guyana and the Permian, stronger natural gas prices, and favorable tax impacts. However, earnings in the refining and chemicals divisions slumped in Q4, pushed lower by weaker North American refining and chemicals margins.

Chevron, on the other hand, reported weaker-than-anticipated adjusted earnings of $3.66 billion for the final quarter of 2024. The company posted a significant drop in annual profit following a year of lower crude prices. Chevron's full-year 2024 earnings excluding identified items dropped to $33.464 billion from $38.572 billion for 2023, due to lower refining margins and natural gas prices.



Analysts are focusing on the FCF of these two oil giants to assess their ability to generate cash and pay dividends. ExxonMobil's FCF for the quarter ending December 31, 2023, was $37.528 billion, while Chevron's FCF for the quarter ending September 30, 2024, was $18.76 billion. Both companies have experienced fluctuations in their FCF over the past 5 and 10 years, but their 3-year and 5-year FCF CAGRs are lower than their industry peers.



The primary drivers of Exxon and Chevron's FCF growth or decline in recent quarters can be attributed to changes in capital expenditures, operating cash flow, and debt issuance or repayment. Both companies have announced significant cuts to their capex budgets for 2025 to improve FCF. Exxon plans to reduce its capex budget by $1 billion, while Chevron aims to cut $2 billion. These reductions will directly impact their FCF in the short term.

In the long term, both companies plan to invest heavily in their best assets, which will impact their FCF but is expected to generate strong returns and grow earnings and cash flow. Exxon's bold 2030 plan involves investing heavily in its best assets, while Chevron plans to grow its earnings and cash flow by 10% and 8% annually, respectively, by 2030. Both companies' long-term capital expenditure plans will impact their FCF, as they will invest heavily in new projects and maintenance.

Investors should closely monitor the FCF of ExxonMobil and Chevron, as it is a crucial indicator of their financial health and potential for dividend growth. As oil prices remain volatile, these companies' ability to generate cash and pay dividends will be a key factor in their long-term success.