Oil giant Exxon Mobil (XOM – Free Exxon Mobil Stock Report)has reported earnings of $1.33 a share for the fourth quarter of 2019, largely helped by a $0.92 gain on the sale of assets. Excluding that item, the slide to $0.41 a share from operations for the quarter compared poorly to our estimate of $0.77 and the $1.41 posted in 2018. For the full 12 months, the company earned $3.36 a share, versus $4.88 the previous year. The slippage in operating profits had become increasing likely in recent weeks after what has been a tough year, given a lackluster industry backdrop marked by weak oil prices. The shares eased further following the earnings announcement after recently hitting a series of 52-week lows.
The difficult conditions aside, Exxon Mobil has been making clear strides in strengthening its drilling portfolio. That has come as the company has bucked the industry trend of spending less. Capital expenditures rose by nearly 16% in 2019 as the development of properties in Texas has been given high priority. That sense of urgency has not been rewarded by investors, but it has nevertheless allowed the company to achieve a long-time goal of boosting oil production, which climbed more than 5% in the year just ended. The advance was driven by a 17% jump in domestic drilling. The gains in oil have been offset, to a degree, by declines in natural gas production, though. The natural gas market is proving even more oversupplied than oil, and has been hurt by a mild winter.
Exxon's strategy to focus on the rapid development of its most promising properties is set to continue. Proceeds of $4.5 billion from the sale of assets in Norway will be plowed back into wells in the Permian Basin of Texas and other high-potential fields, such as offshore Guyana. The company expects overall production from Guyana to reach 750,000 barrels a day by 2025, up sixfold from recent levels. The push to build volume will pay off if oil prices recover somewhat, as may prove the case in time. But Wall Street is currently taking a dim view of the stock, particularly as weak margins dampen contributions from the refining and chemicals businesses.
On the whole, this was a disappointing report for Exxon, with asset sales now seen as helping to fund both new projects and the dividend until crude oil quotations perk up. The company aims to sell $15 billion in assets by the end of 2021, which will provide support for the payout. But the blue-chip stock's good recovery potential depends on an eventual turnaround in industry conditions.
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 2018 was as follows: crude oil, 2.3 million barrels (flat vs. ’17); natural gas, 9.4 billion cubic feet (-4% vs. ’17). Reserves as of 12/31/18 were 21.2 billion barrels of oil equivalent (57% oil and 43% gas).
– Robert Mitkowski
