Exxon and Chevron disagree on the best approach to handle increasing cash reserves

The two largest oil companies in the United States, Exxon Mobil Corp and Chevron Corp, are at odds over what to do with their massive cash reserves. Both companies have enjoyed lucrative first-quarter results thanks to the booming oil and gas operations, paying down their debts incurred during the COVID-19 pandemic and keeping their balance sheets pristine. However, they differ on how much cash to hold in reserves and how to allocate surplus funds.

Exxon CEO Darren Woods believes that the company is well-positioned for a cycle downturn and is happy to see its cash balances rise. He expects the markets to hit the top end of their cycle and said, “The question is obviously when, but that will come.” Woods did not oppose acquisitions as long as it leads to higher returns for shareholders, adding, “It’s got to be one where what Exxon Mobil brings to the table actually increases what either company would do independent of one another.”

On the other hand, Chevron’s finance chief, Pierre Breber, believes that it is “economically inefficient” to hold too much cash on the books and intends to reduce some of its cash reserves, which are triple what it needs for operating activity. He said, “It is not our cash, it is our shareholders’ cash.”

Wall Street analysts are pushing for higher share buybacks and dividends, concerned that too much cash could signal the companies’ intention to make big-dollar acquisitions. Exxon was sitting on $32.6 billion at the end of the first quarter, while Chevron’s vault held $15.7 billion.

The two oil giants have low, net debt-to-capital ratios of about 4%, a far cry from their double-digit ratios of a few years ago. They have also cut spending on new projects to less than half their income, resulting in huge cash reserves that exceed routine operations’ needs. The companies’ stakeholders will undoubtedly be eager to see how they manage their excess funds and whether they can find common ground on the matter.