Barclays Likes Chevron Better Than Exxon Right Now For Big Oil Investors

It’s the black gold of Permian Basin crude from West Texas that fuels the battle between Big Oil giants Chevron Corporation CVX and Exxon Mobil Corporation XOM, but for Barclays it’s the green of cash that sets the two apart for investors.

Barclays likes Chevron better because of strong free cash flow now, while Exxon’s cash availability is set to come later.

The Analyst

Barclays analyst Jeanine Wai initiated coverage of Chevron with an Overweight rating and a $145 price target.

Wai started coverage of Exxon Mobil at Equal-Weight with a $73 price target.

The Thesis

Chevron is strongly positioned to return some of its free cash flow to shareholders and hit its annual growth guidance.

Barclays projects Chevron’s Permian drilling will turn free cash flow positive in the first quarter of 2020. Exxon is targeting its Permian drilling for positive free cash flow in 2021.

The Permian is the largest driver of medium-term production growth for both companies, Wai said. Earlier this year, both Exxon and Chevron said they were shooting for nearly 1 million barrels of oil equivalent a day from the Permian Basin by 2024.

But Exxon has bigger exposure in exploration and drilling than in the downstream business of refining, having pursued leasing and acquisitions during the most recent downturn.

“While we think XOM’s counter-cyclical approach will eventually pay off for shareholders, it leaves the company in a near-term FCF deficit after dividend payment in anything less than a $70 Brent price environment,” Wai wrote in a note. “Our view is that investors are more likely to gravitate toward energy companies that currently have strong free cash flow generation, as opposed to potential free cash flow in the future.”

Also, while Chevron has outperformed Exxon by 11% over the last year, it’s still trading at a discount, Wai wrote.

Price Action

Chevron shares were higher by 1.46% at $117.50 on Monday, while Exxon traded up 1.7% at $69.50.

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