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Exxon Mobil and Chevron may be facing government backlash for the profit that they have booked in the past year. But shareholders will be nothing but grateful. On Tuesday, Texas-based Exxon smashed a record for the most profit ever. With hardly any debt left to pay down – and investments in new projects reined in – the cash will go to investors.

The $460 billion firm said on Tuesday that it earned $13 billion in the fourth quarter, while Chevron said last week it earned over $6 billion. Both companies are holding true to promises that investment in new projects will be prudent. Production at both firms was close to flat compared to the same quarter last year. Exxon boss Darren Woods noted profit smashed the firm’s 2012 record, with lower revenue. Similarly, Chevron’s Chief Executive Mike Wirth said the company is focused on growing returns and cash flow rather than spending on production.

Either firm could go shopping – a smaller European oil company might make a nice target. But valuations aren’t obviously appealing, with the S&P Global Oil Index of major firms up 11% in the past 12 months, and up 169% from pandemic lows.

That leaves a huge amount of cash that can be returned to shareholders. Chevron is projected to earn about $30 billion of free cash flow this year, according to Refinitiv figures. Dividends will eat up about $11.6 billion of that, and buybacks, if kept at the top of its guidance, would consume another $15 billion. That still leaves over $3 billion for the firm to the bank. Exxon is in a similar position.

Neither company seems inclined to increase debt. Oil demand growth has peaked, and may start to decline soon, according to BP’s 2023 Energy Outlook released on Monday. The price of the commodity, always volatile, could turn even more so, making debt riskier. Meanwhile, it’s making less sense to keep buffing the balance sheet. Chevron’s net debt was around $5 billion in December and Exxon’s was under $12 billion. It’s conceivable both could have more cash than debt at the end of the year if the price of oil rises.

As fossil fuels become a scarcer resource, governments that are focused on a shift from using them to greener fuels might be inclined to try to heavily tax oil giants that are booking record profits. In the United States, the application of a one-off tax seems unrealistic, even if the drumbeat to pay one gets louder.

Still, returns were dismal prior to the current boom, as the sector binged to increase fossil fuel production and the market had a glut of oil and gas. Investors who have bided their time want a payout. Big oil can be lean, but not mean.
 

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Exxon Mobil said on Jan. 31 that it earned $12.8 billion in the fourth quarter and $55.7 billion for 2022. That’s up from $8.9 billion in the same quarter last year and $23 billion for 2021. The oil company retired $7.2 billion of debt in 2022. Exxon ended the year with $29.7 billion of cash on its balance sheet, compared to $6.8 billion at the end of 2021. On Jan. 27, Chevron said it earned $35.5 billion for 2022, compared to $15.6 billion. On Jan. 25, Chevron announced a $75 billion buyback program with no set timetable.

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