And while stock and oil prices don’t always move in tandem, the correlation is generally positive, given oil gets more expensive when economic growth increases demand. That means a happy oil CEO should make others happy, too—though companies most sensitive to rising fuel prices, such as airlines, may beg to differ.
Shell CEO Ben van Beurden this morning pinned a better-than-expected doubling of first-quarter profit, in part, on better market conditions. He also said the oil giant had more efficiently operated its assets, while benefiting from a portfolio restructure that included the $50 billion acquisition of BG Group last year and ongoing divestment of $20 billion worth of non-core assets. “The strategy we have outlined to deliver a world-class investment case is taking shape,” van Beurden said.
“The strategy we have outlined to deliver a world-class investment case is taking shape.”
Some analysts were fearful Shell had over-paid for BG, but van Beurden had obviously done his homework, so far pulling off a successful integration that has generated enough revenue to help Shell pay dividends while still reducing its debt pile. His approach offers a lesson to other CEOs tempted to splash out on acquisitions when times are good: have the patience, discipline and daring to wait until a market downturn presents once-in-a-generation value opportunities.
Of course, pulling off such mega-acquisitions is never easy. Exxon, for example, is so big that a long-rumored purchase of BP would run into all sorts of regulatory hurdles. The biggest U.S. oil company is continuing to recover from its ill-timed purchase of shale producer XTO Energy in 2010, a deal struck at the top of the market just before natural gas prices plummeted. “Maybe we were off a year or two,” former CEO Rex Tillerson said in 2013 of that deal’s timing.
Last week, Exxon more than doubled its first-quarter earnings, while major U.S. rival Chevron swung to profit from a quarterly loss. Both companies’ profits beat market expectations. “Our results reflect an increase in commodity prices and highlight our continued focus on controlling costs and operating efficiently,” Exxon CEO Darren Woods said.
Even BP, still hobbled with a massive recovery bill following the Deep Water Horizon spill in 2010, managed to impress with a better-than-expected profit. The company’s debt levels, however, continued to climb as it foots the bill for the disaster.
Indeed, Anadarko CEO Al Walker may be discovering that focusing on costs during a price downturn can risk causing malfunctions.
Authorities in Colorado yesterday linked one of the company’s wells to a home explosion on April 17 that killed two men and critically injured one woman. The exact cause of the incident is not yet clear and Anadarko, which shut down all its wells operating in the area, has at least been praised for its response to incident.
“We are very saddened by the events in Colorado,” Walker said on a conference call with investors yesterday. “We will cooperate with the ongoing investigations to fully understand the fire district’s preliminary conclusions and will engage all possible resources as final determinations are reached in this matter.”