KEY POINTS
- Exxon and Chevron both beat Q1 EPS estimates Friday, with Exxon at $1.16 versus consensus and Chevron at $1.41 versus 95 cents expected.
- Net income fell 45% at Exxon and 36% at Chevron, with combined hedging losses of nearly $6.9 billion tied to the Iran war oil-price spike.
- Both stocks are up year-to-date by more than 20%, but Friday's pre-market reaction is muted, with shares trading roughly 1%-2% higher.
Beats With An Asterisk
Exxon Mobil and Chevron each beat Wall Street's earnings estimates for the first quarter Friday morning, but the headline number masks the operational pain inflicted by the Iran war. Exxon posted adjusted earnings of $1.16 per share on revenue of $85.14 billion, beating both top- and bottom-line estimates. Chevron delivered $1.41 per share against a 95-cent estimate, though revenue of $48.61 billion missed the $52.1 billion Street target by nearly 7%. The pre-market reaction is muted — Exxon up roughly 1%, Chevron up about 2% — even though both stocks are still up more than 20% year-to-date.
The reason for the limited price response is the asterisk. Net income fell 45% at Exxon to $4.2 billion, or $1.00 per share GAAP, down from $7.7 billion or $1.76 per share in the year-ago quarter. Chevron's profit dropped 36% to $2.2 billion, or $1.11 per share, against $3.5 billion and $2.00 per share a year earlier. The headline beats relative to consensus reflect the fact that analysts had already revised estimates down meaningfully ahead of the prints. Beating a low bar is not the same as a strong quarter.
The Hedging Story
The single biggest line item in both reports is hedging losses. Exxon disclosed nearly $4 billion in derivative trade losses, characterizing them as a "timing effect." Chevron booked a $2.9 billion charge tied to its financial hedges. Combined, that's nearly $6.9 billion in mark-to-market losses on derivative positions both companies put on before the Iran war began February 28.
The mechanics are straightforward. Both producers had hedged a portion of 2026 production at price levels in the high $60s to low $80s per barrel, locking in revenue against an expected oversupplied market. When Brent surged 60% on the Iran-war supply disruption, those hedges produced large negative mark-to-market adjustments. Cash flow continued to come in at higher realized prices on the unhedged portion of production, which is why operating revenue beat estimates, but reported earnings took the full hedging hit through the income statement.
That's the right way for traders to read these numbers. The hedges are not cash losses in the long run — the contracts settle against actual production over the rest of the year, and the GAAP losses partially reverse if oil prices stay elevated. But for a quarterly print, the optics are ugly, and that's what's keeping the pre-market gap modest.
Production Up, Capital Discipline Holding
Both companies leaned on the same talking points. Exxon raised production volumes meaningfully in the quarter to capture the higher pricing environment, with Permian and Guyana volumes leading the gains. Chevron pushed Permian production higher and benefited from the ramp at its Tengiz expansion in Kazakhstan. Both companies maintained capital discipline — no meaningful guidance change to capex for the year, and both reaffirmed buyback and dividend policies.
That last point matters most for the long-only energy investor base. Exxon's buyback pace remains intact at the $20 billion annualized rate disclosed at the analyst day. Chevron's $75 billion multi-year buyback authorization is unchanged. The dividends — Exxon's at a 3.4% trailing yield, Chevron's at 4.1% — were both reaffirmed. For investors who own these names for total-return characteristics rather than for spot-oil leverage, the print delivers what they need.
What Comes Next
The forward-looking question is whether the second quarter delivers cleaner numbers. The hedging losses partially unwind if oil stays elevated. The supply disruption in the Strait of Hormuz appears to be easing, with shipping volumes gradually returning toward pre-war levels through Q2. The World Bank is forecasting Brent to average $86 a barrel for 2026, which would imply meaningful normalization from the current $114 print over the rest of the year.
If that forecast holds, the integrateds will deliver Q2 numbers that combine still-elevated realized prices on the unhedged portion of production, reversal of some of the Q1 hedging losses, and continuing capital discipline. That's a setup that supports current valuations, particularly with both stocks up more than 20% year-to-date. If Brent stays above $110 because of renewed escalation, the hedging losses compound and operating leverage to higher prices is muted by the derivative book.
The next hard date is the June 5 OPEC+ ministerial meeting, where production policy in response to the Iran disruption will be set for the second half. A coordinated production increase from Saudi Arabia and the UAE would pressure prices and accelerate the normalization story. A maintained quota would keep Brent supported. For Exxon and Chevron shareholders, those two scenarios produce very different second-half earnings trajectories.
