Petroleum industry giant Exxon Mobil (XOM – Free Exxon Stock Report) has reported third-quarter earnings of $0.75 a share, versus our estimate of $0.95 a share and year-earlier results of $1.46 a share. In the main, performance was hurt by lower oil prices, as domestic and non-U.S. average per-barrel realizations fell to $54.51 and $55.92, respectively. Those figures were down several dollars a barrel from the second quarter and about $10 a barrel from a year ago. This year's third-quarter was also boosted by a one-time, $0.07 a share tax benefit, suggesting an overall lackluster showing from midyear. Even so, Exxon Mobil still earned $3.2 billion in the quarter, an enviable level for most companies. The shares traded modestly higher following the earnings release, but have been a clear laggard this year with the decline in crude oil prices.
Despite the drag of lower quotations, the oil and gas production division continued to be the company's most profitable line. Earnings from refining and chemicals cushioned the dip in the bottom line from the second quarter, but were markedly lower than the previous year's tally. Refining margins were lifted by improved product demand.
In term of production, where Wall Street often pays special attention, Exxon is performing well for one of the world's largest producers. The company pumped 3.0% more oil and gas combined in the past 12 months. For years, the knock on Exxon was that it was not able to raise oil production. But investors are basically shrugging now that capabilities in the field are on the rise. That is because of lower oil prices, as domestic operations were only marginally profitable. There are concerns about low natural gas prices, too. We continue to believe that Exxon Mobil could deliver substantially more natural gas in the United States than it is currently pumping, but low prices are a disincentive. As a result, there is an added focus on expanding overseas liquefied natural gas (LNG) facilities, which, while costly to construct, are not a stretch for Exxon, given its strong finances.
On the whole, Exxon Mobil turned in a decent, but largely unexciting, third-quarter report, in view of subdued industry conditions. One key indicator of success, share repurchases, remains missing, and may not materialize until oil prices sustain a higher level. In the meantime, the stock is suitable for income and offers good long-term possibilities.
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
