The shares of oil industry leader Exxon Mobil (XOM - Free Exxon Mobil Stock Report) traded moderately higher after the company reported better-than-expected first-quarter share earnings of $0.95. That topped our estimate for $0.85 a share and the weak prior-year tally of $0.43. Business conditions bottomed out in the first quarter of 2016, when oil prices briefly dipped below $30 a barrel. That made the year-over-year comparison easy, given the recovery in crude oil quotations to around $50 a barrel. Exxon also benefited from cost management and improved refining results at the start of 2017.
In all, the company generated $4.0 billion in profits for the first three months of the year, with the bulk of earnings coming from the oil and gas production division. International drilling operations shined, with more than a 50% rise in profits, to $2.3 billion. The gain clearly resulted from better price realizations, since the amount of combined oil and gas pumped fell 4% during the quarter. The volume decline mainly stemmed from lower entitlements in Nigeria and operational maintenance in Canada. The better pricing backdrop is encouraging, if still a bit tentative.
Exxon has some work to do yet on its stateside drilling business, though, which turned in an $18 million loss during the quarter. While that figure is close to breakeven and a much better showing than the $832 million loss generated a year earlier, the company is unquestionably focused on making the unit profitable at a lower oil price. Exxon Mobil, like most of the major oil companies, has had to backtrack after concentrating most of its expansion abroad for many years. The advent of shale drilling in North America has required the industry to turn its attention back to now more-productive wells closer to home. Exxon scaled up its operations in the Permian Basin of West Texas through an acquisition in the first quarter and, combined with internal efficiency gains, a turnaround in U.S. pumping operations seems achievable before too long.
Downstream, earnings climbed 24% on the strength of improved refining market conditions. The segment benefited from better margins, higher volume, and a more profitable mix on a modest rise in petroleum product sales. Elsewhere, capital expenditures declined nearly 18%, in keeping with the lower spending associated with $50-a-barrel oil prices. The company also is still not repurchasing stock to reduce the share count, as was a common theme at $100-a-barrel oil prices. However, the company did just boost the quarterly dividend by 2.7%, to $0.77 a share.
On the whole, this was a solid report for Exxon Mobil, and one that offered the promise of better things to come, assuming stable-to-improving oil market conditions. These high-quality shares remain a core holding for conservative, long-term energy investors.
About The Company: Exxon Mobil Corp. is the largest publicly traded oil company in the world. It also owns 69.6% of Imperial Oil (Canada). Daily production in 2016 was as follows: crude oil, 2.4 million barrels (+1% vs. ’15); natural gas, 10.1 billion cubic feet (-4% vs. ’15). Reserves as of 12/31/16 were 20.0 billion barrels of oil equivalent, 53% oil, and 47% gas. The 10-year average reserve replacement rate is 82%. The daily refinery runs in 2016 were as follows: 4.3 million barrels (-4% vs. ’15); product sales, 5.5 million barrels (-5% vs. ’15); chemical sales, 24.9 million tons (+1% vs. ’15).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
