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It’s Raining Dividends in the Oil Patch


It’s raining oil! According to our permanently-confused commander-in-chief, that is a common condition in the winter in Delaware. And it apparently caused his “damn cancer”…which he doesn’t actually have. But beside Biden’s continuing decline, the real point here is that it doesn’t rain oil. Anywhere.

Companies that expend capital to explore for it and then produce it need to earn a return on that capital, and, oh boy, are they doing it now.

Next Friday is “Oil Friday,” with Chevron (CVX) and Exxon (XOM) reporting 2Q EPS. Because we live in a world where Tesla (TSLA) shares can and have jumped because earnings “weren’t that bad,” I want to tell you that CVX’s and XOM’s earnings reports will be really, really good. In terms of the actual numbers, I am tired of doing the market’s homework for it, but subscribers at my site will receive full previews early next week.

The oil majors are doing all the right things with their cash. First and foremost they are putting it in the ground, into new production. Biden and his clueless cronies like to complain about share repurchases and dividend payments (it is a different world than the one I inhabit in which dividends are “bad”) but here’s a quick snapshot. In 1Q22, XOM produced $4.9 billion in capital expenditures, and I think that figure will be north of $5 billion in 2Q22 and the annual figure will end up at the high end of management’s $21-24 billion guidance range for 2022.

But this isn’t Jed Clampett shooting at a squirrel and finding crude. It costs money to lift that oil and gas from below the Earth’s surface, and lifting costs amounted to an expense of over $10 billion for XOM in 1Q22. So, really, the company spent $15 billion on production in 1Q22, and still had enough cash to spend on $5.8 million buybacks and dividends. That’s a cash machine, and the second quarter was much, much better than the first in terms of hydrocarbon pricing.

XOM and CVX are core constituents of my HOAX portfolio and I believe I delineated above the reasons why they will always remain in that portfolio. Exxon continues to have an incredible level of success in Guyana with its partners Hess (HES) and China’s (CNOOC) , as the Stabroek Block is now projected by XOM management to hold a staggering 11 billion barrels of recoverable oil reserves. That’s a real resource base, and a real reason to own the stock. I do, and so do my clients.

The Damocles sword hanging over the oil market is always the threat of demand destruction. Yes, we have all heard the cliché, the cure for high oil prices is… high oil prices. But here’s the thing. Because of cancer-stricken nitwits that don’t actually have cancer but do (alarmingly) have real-world power, the production of oil has been demonized as the world attempts to decarbonize.

But only delusional hacks like Biden, Trudeau and BoJo (not sad to see him go – I will happily take shots at politicians from the Right as well as the Left when they implement anti-energy policies) believe that the planet is melting. Xi doesn’t. Modi doesn’t. Bolsonaro doesn’t. Guyana’s President Irfaan Ali doesn’t, and, sadly, Europe is realizing the hard way that Putin doesn’t believe in any kind of Western world norms.

So, oil production becomes a NIMBY/BANANA situation where it is more palatable for woke folks to produce it in some far-off land and then comprehend the incredibly carbon-intensive marine transportation of that oil than it is to produce the oil in Texas, Oklahoma, or even Delaware.

Exxon has incredibly valuable oil assets offshore Guyana, to go with offshore LNG in Mozambique and onshore LNG in Papua New Guinea. No embarrassment if you just went to Wikipedia to look up those countries – I do it all the time – but there is only one place to look for XOM and CVX. The New York Stock Exchange. Do it.

It’s never too late to buy stock in companies that produce returns capital and return portions of those returns to you. It’s raining dividends in the oil patch, and that shower will not end anytime soon.

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