Petroleum industry giant Exxon Mobil (XOM – Free Exxon Stock Report) has reported better-than-expected fourth-quarter 2018 earnings per share of $1.41. That was compared to the year earlier figure of $0.58 a share (exclusive of tax reform benefits) and our estimate for $1.28. For the full year, the company earned $4.88 a share, versus $3.24 in the previous 12 months. To the point, the $6 billion earned for the quarter and $20 billion for the full year are impressive figures for any company. The results marked the best showing since 2014, when oil prices were flirting with $100 a barrel. Overall, pricing was favorable, although with weakness in crude oil quotations late in 2018. Wall Street cheered the news, pushing the shares higher by more than 2%.
One reason the investment community liked the report was that combined oil and natural gas production picked up toward yearend. To be truthful, Exxon Mobil's pumping operations have been broadly flat over a long stretch. The focus generally is on making operations more profitable rather than boosting volume for its own sake. But investors nevertheless prefer to see headway in the field. Although full-year comparisons were unimpressive, total oil and gas production made nice progress in the fourth quarter. The company is making the most of its investments in the Permian Basin of Texas, where production has jumped owing to the development of acquired properties. We look for further gains from Texas wells in the years ahead.
Downstream, the company's refining business turned in less impressive, but still supportive, performance. A buildup in gasoline inventories held back results late in the year. The story was similar in chemicals manufacturing, where recent industry capacity additions kept a lid on the bottom line. Exxon's refining and chemicals lines are world class in every respect, but are not viewed as profit drivers to the same extent as pumping oil.
Looking ahead, the push to develop oil properties should keep profitability high into the early part of the next decade. Exxon's capital and exploration spending rose 12% in 2018, which was notable during a period when many of its competitors were keeping a tight rein on expenditures. On the down side, the company is not repurchasing stock these days. Buybacks are viewed as a sign that business is clearly on the upswing. Even so, we look for a dividend hike this year. These blue-chip shares already offer a very attractive yield and they remain a core energy holding.
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
