ExxonMobil, Chevron’s big cash shows cheap gas isn’t coming back
If you want a quick outlook on whether U.S. gas prices are likely to return to pre-Covid levels, a good place to start is earnings reports from Chevron and Exxon in the last week.
The outlook: Don’t count on it. In their fourth-quarter earnings reports, both companies showed clear signs of Big Oil’s renewed focus on managing costs, widening profit margins as oil prices stayed relatively high even after coming down considerably from last year’s highs, and confidence that they will be able to keep passing the rewards back to shareholders.
On Jan. 25, Chevron announced a $75 billion share buyback, which will allow it to use excess cash flow to cut the number of shares by up to as much as 20% — over multiple years and contingent on shares also used for employee options programs and M&A rather than just earnings per share increase. Chevron also raised its dividend to about 3.4%, double that of the Standard & Poor’s 500-stock index. On Jan. 31, Exxon announced it had spent $15.2 billion to acquire stock in 2022 – up from $155 million a year earlier, and authorized another $35 billion this year and next.
The moves are the latest page in the industry’s post-2020 playbook: To satisfy investors who pushed energy stocks down more than 40% in a rising stock market between 2014 and 2019, oil companies slowed down drilling overinvestment that had caused cash-flow losses estimated as high as $280 billion. With the conserved cash, they raised dividends and boosted stock buybacks – moves that helped oil stocks double in the year after the 2020 election, as U.S. gasoline prices rose by more than half.
Rob Thummel, senior portfolio manager at Tortoise Capital Advisors, which advises mutual funds on energy investing, said Chevron and Exxon are in position to increase the dividend, increase production, and buy back stock. “They are doing what mature companies do – generate a lot of cash and return it to shareholders,” he said.
Big oil sees political pushback on buybacks
Fuel prices at a Chevron gas station in Menlo Park, California, on Thursday, June 9, 2022.
David Paul Morris | Bloomberg | Getty Images
The industry’s reallocation of money to shareholders from new drilling comes as political leaders, including President Joe Biden, criticize oil companies for not restraining the price of gasoline as crude oil rose from $53 when Biden took office in 2021 to $77.50 now. Exxon’s fourth-quarter profit margin of almost 14% of revenue compares to 11% a year ago.
“My message to the American energy companies is this: You should not be using your profits to buy back stock or for dividends,” Biden said in October. “Not now. Not while a war is raging. You should be using these record-breaking profits to increase production and refining.”
The White House attacked both companies again this week after the buyback announcements.
In the market, and at the oil companies headquarters, it seems the opinions issued from the White House aren’t much of a factor in setting financial priorities. The price of oil is set on world markets, rather than by individual producers, Thummel said. The role of the Organization of Petroleum Exporting Countries, led by Saudi Arabia, in limiting production is the biggest factor in world prices. U.S. oil production, which does not have a central organization setting prices, has rebounded from a post-Covid low reached in April 2021, and reached 383 million barrels per month in October, closing in on the all-time high of 402 million in December 2019, according to U.S. government data.
Gas prices are also being hit by a loss of refining capacity. Part of this is longer-term, as refiners phased out less profitable facilities during the Covid-related demand drop, and following a wave of mergers forced by declining cash flow and share prices. And part of it stems from temporary shutdowns for maintenance made necessary by the cold wave in much of the country in December, CFRA Research analyst Stewart Glickman said.
Of the two biggest U.S. oil producers, Chevron made the more dramatic changes in the fourth quarter earnings releases, since Exxon had announced its buyback acceleration earlier, Glickman said.
The benchmark now is to spend roughly a third of operating cash flow on capital investment, a third on dividends and a third on stock buybacks. The buybacks can be dialed back if oil prices fall, and would likely be the first big cost cut oil producers would make if crude fell back to $60 a barrel from the current range about $77, he said. Buybacks, unlike dividends, aren’t treated as a “must” by investors each quarter, while cutting a dividend can lead to mass selling by investors.
Chevron is pretty close to Glickman’s recipe, with $49.6 billion of 2022 cash flow yielding $11 billion in dividend payments, $11.3 billion in share buybacks that were accelerating as the year ended to the $15 billion annual pace, and $12 billion in capital investment – enough to boost U.S. production by about 4% even as its international production dropped. Exxon made $76.8 billion in operating cash flow, invested $18 billion back into the business, spent $14.9 billion on dividends and $15.2 billion in stock purchases, according to its cash flow statement.
“What we learned from [earnings announcements] is that the industry is very committed to a conservative approach to spending,” Glickman said. “They could [drill more], but they would have to sacrifice their return thresholds, and neither they nor their shareholders are interested. I don’t blame them.”
Oil production is increasing
Despite the push to pay out more money, the companies have begun to produce slightly more oil in the U.S.
Chevron said its U.S. oil production gain was led by a double-digit increase in the Permian Basin of Texas. Exxon also said Permian production led its U.S. results, rising by nearly 90,000 barrels per day.
“Growth matters when it’s profitable,” Chevron CEO Mike Wirth said on the company’s earnings call on Jan. 27. Chief Financial Officer Pierre Breber said the company’s four major financial goals are dividend growth, buyback growth, capital spending and reducing debt.
Slower growth and cash distribution is the right path for an industry that is growing more slowly, Thummel said, especially since the government is prodding utilities away from relying on natural gas to make electricity and offering consumers tax credits to swap gasoline-powered cars and SUVs for electric models.
In the early part of the last decade, investors applauded energy companies for investing more than their entire operating profit in new wells, believing that hydraulic fracking would propel the sector to a new wave of growth, Glickman said. And while U.S. production more than doubled during the fracking boom, it failed to produce the expected profit. Today, politicians are trying to foster a transition away from fossil fuels, making it dicey for Big Oil to invest in large offshore drilling plans that may need decades to pay off, he added.
“Why on earth would these companies agree to play ball with that kind of attitude?” he said.
The oil companies’ new approach stands in sharp contrast to that of EV maker Tesla, which has resisted shareholder pressure to begin buying back stock as it begins taking share in a market entwined with the oil companies. Tesla has hung on to its cash flow even as it completes a major factory-building campaign that has seen it add new plants in Texas, China, and Germany to its initial production facility in California. The company also produces batteries for its vehicles in Nevada.
That path works for Tesla because it is addressing a fast-growing market for EVs, while oil companies are trying to milk the cash from their existing, low-growth businesses and invest in new ones like carbon capture before current sources of cash flow like gasoline sales begin to shrink, Glickman said. But even Tesla should be returning cash to holders after a sharp decline in shares last year, Wedbush analyst Dan Ives said.
“Our view is that it’s a no-brainer that Tesla should do a buyback now,” Ives said. “Tesla is in a robust position financially and this would send an important signal. The biggest capital spending is in the rearview mirror for now.”
But Tesla’s most obvious short-term use of its $22 billion cash hoard might be preparing for any possible impact on profits of the price cuts it announced Jan. 13.
Environment
Another big car brand is testing solid-state EV batteries, just not in the way you’d expect
One more major player in the auto industry is now testing the “holy grail” of electric vehicle batteries. Solid-state EV batteries promise longer driving ranges, faster charging, and significantly higher energy density. However, this carmaker is using them in a unique way.
Subaru begins testing all-solid-state EV batteries
Subaru isn’t the first car brand that comes to mind when considering electric vehicles. Like other Japanese automakers, including Toyota, Subaru has been one of the biggest laggards in the shift to EVs.
However, Subaru, like many automakers, sees solid-state batteries as a way of unlocking the full potential of battery electric vehicles.
The Japanese automaker began testing all-solid-state batteries at its Oizumi plant in Japan, but not in the way you would think.
Subaru is using all-solid-state batteries to power robots at the facility, which are used to automate the production process. Typically, batteries in industrial equipment only last one to two years. The all-solid-state batteries will last over 10 years without replacement, Subaru said.
By the end of the month, Subaru will begin testing solid-state batteries in vehicles. However, the battery packs used for its robots are way too small to power an EV.
Maxwell Ltd. manufactures the ceramic-packaged all-solid-state battery packs, which are typically used in industrial equipment.
By the end of the decade, Maxwell aims to offer solid-state batteries for other applications, including “automotive devices.” The Japanese electronics firm sees a possibility that its tech could end up in vehicles, but not anytime soon. For the time being, it will focus on smaller battery packs.
A spokesperson from Subaru told Automotive News that the company is still exploring future battery chemistries and has yet to decide on solid-state batteries for EVs.
Although a solid-state battery-powered EV from Subaru is not expected anytime soon, it is launching several new all-electric vehicles, including the updated Solterra and Trailseeker SUVs. Subaru, like a handful of other brands, is reconsidering its EV strategy in the US due to the changes under the Trump administration, including the removal of the federal tax credit.
The news follows Nissan’s announcement this week of a partnership with US-based LiCAP Technologies to develop a dry electrode production process for mass-producing all-solid-state EV batteries.
Electrek’s Take
Many major car brands are pursuing the “holy grail” of EV batteries, including Toyota, Mercedes-Benz, BMW, and Stellantis, to name a few. Global battery leaders, CATL and BYD, expect to launch their first EVs powered by solid-state batteries around 2027. Others are aiming for the end of the decade.
In February, Mercedes claimed to have put “the first car powered by a lithium-metal solid-state battery on the road” using a modified EQS prototype. BMW announced a similar feat a few months later in May.
Meanwhile, SAIC MG is preparing to launch the first EV with a semi-solid-state battery, the new MG4, which will be sold globally. The company will reveal prices in September, with deliveries set to begin before the end of 2025.
And these are just the auto brands. Several other startups and tech companies are also looking to unlock new battery technology.
Which company will be the first to launch the new battery tech on a mass scale? Let us know your thoughts in the comments below.
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Police in the UK have confiscated what they say is the fastest electric bicycle they’ve ever seen, suggesting it was capable of reaching speeds of 83.2 MPH.
It was reportedly one of more than 100 illegally-modified electric two-wheelers seized by police in Sunderland so far this year.
The Northumbria Police shared several images of the bike, revealing a DIY build using a high-power direct drive rear hub motor, a triangle bag-mounted softshell battery, and a large speed controller slung under the down tube. The bike itself appears to be a fairly standard mountain bike converted into an e-bike.
E-bikes in the UK are permitted to reach electrically assisted speeds of just 15.5 mph (25 km/h) and do so on pedal-assist only. The bike in question was apparently capable of significantly exceeding that legal limit.
Police shared an image of the bike’s LCD panel showing a max speed of 83.2 mph (134 km/h), though this is almost certainly the “no-load” speed reached from lifting the rear wheel and allowing it to spin up freely without resistance. Police say that they stopped and confiscated the bike when its rider was seen traveling at 35 mph (56 km/h). They were alerted to it “following reports it was travelling in front of a car.”
Due to the nature of roads in the UK, e-bikes that ride on them are generally in front of or behind cars, and occasionally next to them.
Electrek’s Take
This is pretty dumb for a number of reasons. First of all, those bikes and components aren’t meant to handle these kinds of stresses. Any number of parts could fail catastrophically. The tires can fail early, the freewheel can lock up and cause the crank to whip around while sending several fragments of your fibula to places they shouldn’t be, the suspension fork can shear from hitting a bump at such speeds, the dropouts can literally tear out and send your rear wheel in a different direction at speed… the possibilities are endless. And that’s just the risk to the rider, not even yet getting to the risk they cause to others, depending on how and where they ride.
Then there are the legal issues, and the fact that these knuckleheads are going to ruin it for everyone by bringing a bad name to actually legal e-bikes. Most of the “illegally fast e-bikes” are clearly not bicycles (we’re talking Sur-Ron dirt bikes and similar), but this one is actually built on a bicycle frame and thus further confuses the public and law enforcement regarding legal and safe e-bikes.
If you want to go 35 mph, just get a scooter. There are plenty of good options.
via: BBC
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Tern has just unveiled a new pair of electric bikes in collaboration with Airstream, and they might be the most “on-brand” accessories an RV owner could dream of.
The two-bike collection includes special edition versions of Tern’s Vektron S10 and HSD P5I e-bikes. Those two models are already well-loved e-bikes in the urban mobility world, known for their bulletproof designs and rugged everyday rider build quality. But now they come wrapped in Airstream’s signature polished aluminum aesthetic and are purpose-built for life on the road… or more accurately, life off the road.
The new Vektron S10 Airstream by Tern is a premium folding electric bike that combines compact stowability with full-size performance. It folds down in seconds and tucks neatly into an Airstream trailer or tow vehicle.
And it’s not just a pretty new face, either. This is still a Bosch-powered, cargo-capable workhorse that can haul groceries or even a kiddo on the rear rack.
The second model, the HSD P5I Airstream by Tern, is a compact electric cargo bike that’s essentially a small pickup truck disguised as a bike. You get serious utility in a short, nimble package. It’s ideal for campsite errands, runs into town, or cruising around a rally site.
Both models use Bosch’s Performance line drive system with pedal assist up to 20 mph (32 km/h), and they tap into Tern’s impressively deep accessory ecosystem so you can spec them out with front racks, passenger seats, panniers, and more. The Vektron S10 Airstream is priced at $3,699, while the HSD P5I Airstream rolls out at $5,099.
According to Steve Boyd, Tern’s GM for North America, “folding e-bikes and compact e-cargo bikes make the perfect addition to the RV lifestyle.” And frankly, it’s hard to disagree. When you’re parked for the night, your trailer isn’t going anywhere, but your e-bike sure can. Whether you’re headed to the nearest trailhead, grocery store, or lakeside picnic spot, these e-bikes let you leave the truck behind and ride in style.
I’m always hearing from RV owners about how an e-bike – or usually a pair of them – completely changed the game for them by giving them easy mobility beyond where they can reach with their rig.
Airstream’s CMO Mollie Hansen says the company wanted to give owners a better way to explore and make memories, and this partnership with Tern fits right into that mission. The idea is to extend the sense of freedom you get from your trailer onto two wheels, and maybe even spark a little envy from the folks camped next to you.
The design of the bikes was led by The Show Design Co., and the team had plenty of direct contact with real Airstream owners during testing, including a visit to the Airstream International Rally in Sedalia, Missouri. According to company president Mike Milo, the bikes proved to be a hit. And now they’re heading to their official debut at this year’s Airstream Club International Rally in York, Pennsylvania (August 23–28), where owners will get free demos.
Electrek’s Take
This collaboration makes a lot of sense to me, and it’s almost surprising it didn’t happen sooner. Airstream and Tern are both brands with serious design chops and practical roots. Folding e-bikes and cargo e-bikes already dominate the RV world because of how easy they are to transport and how useful they are once you’re parked. Add in some Airstream polish and now you’ve got the official e-bike of campfire coffee runs and last-minute beer missions.
Of course, these aren’t budget bikes by any means, but they’re built to last. When someone tells me they want a bike that is built to haul and they don’t mind paying a bit extra for something higher quality, I always tell them to go to Tern. These bikes are just built to a higher standard, literally. I say that if you want a bike that looks like it’s built tough, get one of those ridiculous Hummer fat tire e-bikes. If you want something that’s actually built tough, you get a Tern.
Now, if they could just also build one that looks like a mini aluminum trailer for e-bikes, we’d really be in business. They’re close… Tern already has a bicycle tow kit!
Ok… now, after spending time making AI generate that image, I really want to build that thing!
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