Shares of Exxon Mobil (XOM – Free Exxon Mobil Stock Report) fell modestly after the oil industry leader reported earnings of $4.0 billion, or $0.93 a share, compared to $0.63 per share a year earlier. Contributions from asset sales may have weighed on sentiment. Year-to-date results showed Exxon earned $11.3 billion, or $2.66 a share, for the first nine months of the year, versus net of $1.47 in the previous year. The improvement is part of a broad industry trend that has seen operators benefit from improved prices, as well as sharp internal cost reductions.
As usual, the drilling business was the most profitable, compared to refining and chemicals operations, within the company's integrated approach to the petroleum industry. In particular, earnings from the international project portfolio drove the bottom line higher during the quarter, mainly as a result of a better pricing environment. Production rose 2% for the three-month period, but there has been more of a flattish tone to production lately. We don't look for a major push higher either, in view of less ambitious capital spending plans these days.
The company still has work to do to make its United States pumping division profitable, too. Losses in U.S. drilling were halved, year over year, to $238 million, indicating progress toward that goal. There are strong reasons to believe that it is only a matter of time before the production of domestic oil and gas becomes a profit center again. Exxon has a long history of maximizing the value of installed capacity through efficiency initiatives. Meanwhile, Exxon Mobil addressed some of its long-term objectives by adding promising acreage offshore of Brazil and Guyana, and in the Permian Basin of west Texas.
Elsewhere, better margins in the refining segment contributed to the improved performance during the quarter. Profits from chemicals manufacturing dipped slightly as a result of lower margins, though. Notably in the chemicals line, the company purchased a facility in Singapore that fits in nicely with its major refining and chemicals complex on that island nation. The move is another illustration of Exxon's financial strength and the multi-year nature of its strategies.
Overall, this was a solid report, with the company taking a step forward amidst the backdrop of the broader industry recovery. We now look for earnings of $3.60 a share in 2017, with perhaps a 10% gain on that figure in 2018. While the shares do not stand out for the year ahead, they do offer attractive 3- to 5-year total return potential. The stock also has special appeal for conservative investors, given its top quality.
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).
— Robert Mitkowski
