Energy industry leader Exxon Mobil Corp. (XOM – Free Exxon Stock Report) has reported first-quarter earnings of $4.7 billion, or $1.09 a share, versus the year-earlier tally of $0.95 and our estimate for $0.95. Expectations had been climbing in recent weeks with oil prices on the rise, though, and, in that respect, profits were a bit shy of Wall Street's revised estimates. There was also some disappointment that no large share-repurchase plans were announced. The stock fell somewhat as trading commenced.
Higher crude oil price realizations accounted for a big part of the increase in the bottom line, since combined oil and natural gas production declined on an annual basis. Volume fell moderately as a result of lower entitlements from OPEC fields where pumping is scaled back as prices rise; divestments; and less output from mature wells. Elsewhere, downstream and chemicals profits were unexciting, as margins for chemicals manufacturing and international refining operations eased as input costs rose. While the internal quarterly performance was lackluster, the improved pricing environment nevertheless has led us to increase our full-year 2018 share-net estimate by $0.60, to $4.70.
Exxon Mobil's focus remains on profitable long-term growth. The company's buildup of multiyear projects that offer the potential for earnings to double or triple by the middle of the next decade is impressive. Drilling ventures include a major focus on raising pumping capacity in the Permian Basin of Texas, where the company is using the savings provided by the reduced U.S. corporate tax rate to advance its interests. Exxon is also developing high-impact deepwater wells offshore of Guyana and Brazil. On the natural gas side, LNG undertakings being brought along in Mozambique and Papua New Guinea offer considerable promise to serve the energy needs of fast-growing Asian markets. Broadly, a pullback in capital spending induced by the oil-price slump a few years earlier appears to be over, as spending has picked up to deliver long-term growth.
Although the company did not announce a major repurchase initiative and is instead using cash to build for the future, we view stock buybacks as more of a feature of peak-cycle conditions. Industry conditions these days may be better characterized as mid-cycle. Investors did get some consolation from the recent 6.5% increase in the quarterly dividend. The stock currently yields more than 4.0% and provides a good source of income for conservative, buy-and-hold accounts.
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 2017 was as follows: crude oil, 2.3 million barrels (-4% vs. ’16); natural gas, 10.2 billion cubic feet (+1% vs. ’16). Reserves as of 12/31/17 were 21.2 billion barrels of oil equivalent (57% oil and 43% gas). Reserve life at the current production rate is 14 years. The daily refinery runs in 2017 were as follows: 4.3 million barrels (flat vs. ’16); product sales, 5.5 million barrels (flat vs. ’16); chemical sales, 25.4 million tonnes (+2% vs. ’16).
— Robert Mitkowski
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
