Chevron (CVX) and ExxonMobil (XOM) experienced a drop in their stock prices on Friday following the release of their first-quarter earnings reports. Both oil giants reported a year-over-year decrease in profits, primarily attributed to lower natural gas prices and declining refining margins.

ExxonMobil's adjusted earnings stood at $2.06 per share for the first quarter, reflecting a decline of 27% compared to the same period last year. This figure fell short of analysts' estimates of $2.19 per share. The company's refining segment witnessed a significant slump, with profits sinking over 60% to $1.4 billion.

Chevron's adjusted profit for the first quarter was $2.93 per share, surpassing estimates of $2.90 per share. However, it still experienced a 17% decrease compared to the previous year. The company attributed this decline to lower margins on refined product sales and lower natural gas realizations.

The impact of the profit declines on Chevron and ExxonMobil's stock prices was evident, with Exxon's stock falling by 4% and Chevron's declining roughly 1% during mid-morning trading.

This drop in profits was more severe than anticipated by consensus estimates, according to Peter McNally, global sector lead for industrials, materials, and energy at Third Bridge. The lower natural gas prices and declining refining margins played a significant role in the companies' financial performance.

Despite the challenging first quarter, there is potential for the oil majors to benefit from rising oil prices in the upcoming quarters. Crude prices showed a slight increase in the first quarter of this year compared to the previous year, and many Wall Street analysts anticipate oil prices to remain above $80 per barrel, creating a favorable environment for energy companies.

Additionally, investors were eager for updates on the potential acquisitions by the oil majors. ExxonMobil's CEO, Darren Woods, reiterated the company's reasons for filing for arbitration regarding Chevron's plan to acquire Hess and its valuable 30% stake in a promising oil block off the coast of Guyana. ExxonMobil holds a 45% interest in this lucrative region.

The Guyana asset has proven to be highly profitable, as ExxonMobil reported higher-than-expected production in the region. Hess also announced better-than-expected first-quarter results, with a 70% increase in production in Guyana.

Furthermore, Chevron unveiled a proposal to acquire Hess for $53 billion, shortly after ExxonMobil expressed its intent to purchase Pioneer Natural Resources for almost $60 billion last year. The acquisition is expected to conclude by the end of the second quarter, subject to regulatory approval. This merger would allow ExxonMobil to double its footprint in the Permian Basin, the largest oil-producing region in the United States.

ExxonMobil announced it distributed $3.8 billion in dividends during the last quarter and stated that the annual pace of share repurchases, which had been paused pending the merger, would increase to $20 billion per year after the transaction's completion. Chevron reported repurchasing $3 billion in shares and distributing an additional $3 billion in dividends during the first quarter.

Looking ahead, despite the first-quarter profit decline, analysts forecast earnings growth of 14.6% for the energy sector in the second quarter of 2024 according to FactSet data. As the global energy industry continues to navigate market challenges, Chevron and ExxonMobil aim to capitalize on steady crude oil prices and potential future acquisitions.