00:00 Speaker A
the refining side once again coming through for both Exon uh and Chevron. Uh for both, you know, utilization very strong, throughput very, very strong. The spreads extremely strong. So we’re coming close to that part of the cycle where you ask yourself how much can things get better. Um you have WTI 104, Brent 117 today. Uh both Exon and Chevron hitting new highs. Uh valuations approaching the uh the upper bound of the last five years. So you ask yourself, does it feel like you’re close to a peak? Uh if um we have benchmarks that continue down this path over 100 bucks, uh you could see a lift in 4Q earnings, but how do things get better from here? Um hard to say. So, uh if you’re an investor in these names and you’re reading the tea leaves, um aside from uh the war, uh where would the benchmark be? So, I think as I scrub the models for 2027, I’m starting to get a little bit more cautious with respect to the earnings cadence from here, aside from any kind of benefits of 4Q.
01:21 Speaker A
Right. Uh the one thing I would say, Paul, is that that these guys are throwing off a boatload of free cash flow. Uh 19 billion this quarter alone for Exon. Uh debt, net debt is down significantly, the cash is up. So you wonder what happens for 2027 if uh share buybacks are going to be held relatively flat. That’s a lot of firepower to go into a year of uncertainty.
01:50 Speaker B
So that brings me to my next question. What do they do with all that cash? I mean, share buybacks is kind of an obvious answer. Of course, these are dividend paying companies, but how else do they deploy it?
02:08 Speaker A
So, uh, Exon and Chevron have acquired in the past. You know, Chevron is digesting Hess after a bruising battle with uh uh um Exon. Um, Exon of course bought pioneer in the Permian. As you think about the next growth cycle, what happens as you push past 2027 and 2028, uh is there more um LNG to invest in? Are there other companies here in the US uh to a purchase uh just given that the relative multiple advantage and the cash horde that they have. You mentioned the dividends. Um, yes, they do pay modest dividends so you could see some upside there uh if trends do continue. again, Exon held its share repurchases relatively flat for 2027. So there’s a lot of firepower there for both not only in organic growth uh via M&A, uh but also organic growth as well. um as it has other projects it can invest in in Guyana and elsewhere.
02:59 Speaker C
Hey Vince, we’re hearing from over the last, I don’t know, a month or two from the Trump administration and from some third-party observers that, you know, quite a lot of oil is getting through the straight of Hormuz here. If so, why is Brent at $117 a barrel?
03:20 Speaker A
Yeah, that’s what I’m questioning as well, right? Because uh the reality on the ground is uh things are getting closer to a more normal cadence uh through the uh through the Hormuz. Uh but there’s also the uh the geopolitical risk of potential strikes after the midterms and what that could mean for global balances as well. So, I think there’s a lot of uncertainty there and that’s why you’re seeing the geopolitical risk premium remain in uh WTI and also uh Brent. And that’s why you’re seeing these names still have some life to them as we get closer to the end of this cycle.
04:22 Speaker B
How do you think about the midterm elections and the risks um of a democratic controlled Congress? What does that mean for
04:33 Speaker A
Well, Yeah, I guess it’s more of a drum beat with respect to um a windfall profits um and the uh uh the excess cost at the pump for a lot of consumers with these high prices. The only thing is the refiners are really going full out. Um it’s not like they’re holding back utilization on the refining side. Uh so it they are maxing out. So that’s that’s not the issue. and I think there’s going to be a little bit of uncertainty post the midterms, but um a lot of it is wait and see and that’s and that’s why there is a great deal of uncertainty and volatility in the overall uh commodity space for the energy markets.
05:20 Speaker C
So, as you well know, Vince, I’m a an astute viewer of Landman. I know all things about the energy business, the oil and gas business here. West Texas doesn’t necessarily like WTI over $100 a barrel because that might be some demand destruction here. Um, are we seeing that at all?
05:40 Speaker A
Well, you know what? I think comments from uh I think it was BP or Shell um earlier said they are seeing some uh demand destruction. Look, $100 crude uh does no one any good um because it does reduce demand. Uh as I think we’ve talked about in the past, Paul, you know, 100 bucks is right at that level of uh uh demand destruction. 60 is no good for the industry. That’s 75 to 80 is that sweet spot where everyone feels that there’s enough profitability and return on that investment and the consumer isn’t um hijacked at at the pump.
06:21 Speaker A
And we’re not there yet. And you know, quite frankly, I thought we we were going to get there with uh tensions being uh ratcheted down some, but in the last month or so, we’ve also we’ve seen these uh uh we’ve seen these marks scream off the scre uh scream off the terminal here. And that’s really a function of uh the ratcheted up of tensions um as we get closer to the midterms and after the midterms as well.
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