Chevron (CVX) and ExxonMobil’s (XOM) stocks dipped on Friday after the energy giants both posted Q3 earnings misses amid weakness in their oil refining and chemical units. However, energy analysts are focusing on what the super majors' recently announced acquisitions will mean going forward.
On Friday, Chevron shares dipped 5% after adjusted earnings came in at $3.05 per share versus consensus estimates of $3.71 as higher costs at its international refineries put a strain on profits. Natural gas prices, which are down roughly 60% on a year-over-year basis in the US, also weakened the company’s results.
Meanwhile ExxonMobil stock fell more than 1% after the company reported earnings per share of $2.27 versus expectations of $2.36 due to weakness in its chemical products segment as supply outstripped demand.
Earlier this week Chevron announced it will purchase Hess for $53 billion, gaining the oil and gas explorer's Guyana operation, one of the largest crude discoveries in the past decade. The news came more than a week after Exxon announced a merger with Pioneer Natural Resources in a deal valued at $60 billion.
Jeremy Klingel, senior partner of energy and utilities at West Monroe, told Yahoo Finance on Friday that he didn't view the quarterly profit misses at both companies as significant.
“They’ve got the long game in mind, where this is going to be a highly profitable business into 2030,” he added.
Exxon's acquisition of Pioneer will make the oil giant the largest player in US shale oil by giving it massive scale in the Permian Basin.
"Based on our initial assessment, we expect our combined Permian production to increase to approximately 2 million oil-equivalent barrels per day by the end of 2027," said Neil Chapman, senior vice president of ExxonMobil, during the company's earnings call on Friday.
CFRA analyst Stewart Glickman highlighted the potential for "15% cost synergies" post-acquisition in a note to clients after the call. The analyst raised his rating on ExxonMobil from Hold to Buy and raised his price target by $8 to $121 per share.
The Hess acquisition will give Chevron 30% ownership of more than 11 billion barrels-equivalent of recoverable resources in Guyana. The small country located in South America next to Venezuela is on track to produce than 1 million barrels per day by 2026.
"Looking forward, Chevron's strong balance sheet and the acquisition of Hess should push production higher. The company continues to invest across all of its businesses — upstream, downstream, and in low carbon solutions while returning cash to shareholders,” said Peter McNally, global sector lead for industrials, materials, and energy at Third Bridge.
M&A activity in the industry is on the rise as companies look to expand production as oil hovers above $83 per barrel. Buying other players is more efficient than going it alone, Klingel said.
“If you look at the timeline and the horizon to develop new projects, new exploration, it’s time consuming and obviously quite expensive and capital expensive,” said Klingel. “[Exxon and Chevron are] going to get a shot in the arm, much more of a bang for your buck, by acquiring those known assets and known reserves and what are generally well-run businesses.”
Analysts expect more consolidation, though perhaps not on the same scale as the Exxon-Pioneer and Chevron-Hess deals.
“This was probably the last of mega-deals,” Andrew Dittmar, senior vice president of Enverus, told Yahoo Finance earlier this week.
“What you’re probably going to see from here is more of the large independent [companies]. The Devons, Marathons, and Coterras of the world looking at M&A. Either potentially merging with one another or looking to roll up even their smaller-sized rivals," said Dittmar, referring to producers who do not refine more than 75,000 barrels per day.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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Wall Street eyes Big Oil's deal upsides despite Chevron, Exxon earnings misses - Yahoo Finance
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