Big Oil is pumped up

It was a gusher of a quarter for US oil giants Chevron and ExxonMobil. But forget “drill, baby, drill”—the real money was in refine, baby, refine.

Reporting earnings today, both companies blew past expectations on both top and bottom lines: Chevron’s net income surged nearly 200% in Q3 to $9.9 billion, or $5.06 a share, while ExxonMobil’s quarterly profits doubled to $15.4 billion, or $3.72 a share.

These bumper profits didn’t come from the usual cash cow of pumping crude. Upstream production has actually dipped slightly at both companies as the Middle East conflict disrupts drilling operations. But in a surprise benefit, attacks by Ukraine and Iran have also knocked out refineries in Russia and the Middle East—giving US companies an opening to pick up the slack and ramp up their own refinery activity at home.

The numbers say it all: Chevron’s US refineries have been firing on nearly all cylinders, running at 98% capacity and processing a record 1.09 million barrels of crude per day. That helped send refining profits soaring 300% year-over-year to $4.9 billion—the company’s biggest downstream payday in six years.

Similarly, Exxon’s Gulf Coast refineries ran at 100% capacity and produced their second-highest volume of diesel on record. Refining profits of $7.2 billion even edged out the $7.1 billion it made by extracting oil and gas from the ground—a first in the same six-year time frame.

This surprising news gassed both companies’ stocks today, with Chevron up 1.75% and Exxon up 2.25%.

Pain at the pump

Wall Street may be impressed, but Main Street not so much.

High gas prices have become a political pothole ahead of Tuesday’s midterm elections. So rather than laugh all the way to the bank, Exxon CFO Neil Hansen put it differently. “It’s important to acknowledge that these higher fuel prices put real pressure on families and businesses,” he told Reuters. Exxon hopes to ease it by pulling “every lever that’s available to us to increase supply.”

Chevron and Exxon are both plowing some of their windfall back into refining their refineries. Exxon expects those investments to boost US distillate production of diesel and other fuels by another 100,000 barrels per day, though it didn’t say when. Chevron also sees room to squeeze more out of its Gulf Coast facilities, including a potential 7% capacity boost by the end of the decade, CFO Eimear Bonner told Reuters.

Both firms have also used their profits to knock out debt, with Exxon cutting its IOUs by $8 billion and Chevron by nearly $14 billion. Even though business is booming now, the good times may not last: Bonner said Brent crude, the global benchmark, bounced between $68 and $132 per barrel last quarter, underscoring just how quickly the energy market can turn and veer into uncharted territory.—JD