Oil industry leader Exxon Mobil (XOM – Free Exxon Stock Report) has reported fourth-quarter and full-year 2016 earnings per share of $0.41 and $1.88, respectively. While down from the year-earlier and below our estimates, results were obscured by an impairment charge to oil and natural gas assets of $2 billion, or $0.48 a share. Without the charge, earnings for the December quarter would have been $0.89 a share, better than our estimate of $0.73 a share. Results also included pretax asset sales of $2.1 billion, boosting share net overall. The stock was off modestly following the announcement on a down opening for the market overall.
Despite the writedown of assets, which had been expected but not included in earnings estimates because of the uncertainty of its size, Exxon's yearend 2016 performance offered some encouragement. Profits at the company's oil and gas pumping division appear set to turn around now that crude oil prices are trading above $50 a barrel. Quarterly comparisons at non-U.S. operations are already favorable, and it seems like domestic drilling will soon turn the corner.
In terms of production volume, Exxon's full-year numbers were slightly (1%) down. But the flattish performance was not all that bad a result, considering that poor realizations for most of the year provided little incentive to do any extra drilling. Indeed, capital expenditures and exploration expenditures fell 38% over the full 12 months. But with momentum in the field starting to build now that the pricing environment is on firmer footing, the company has become a bit more aggressive, boosting its base of oil assets through a $6.6 billion acquisition in January. Exxon Mobil doubled down on its position in the highly productive Permian Basin of West Texas. That should give drilling results a boost going forward.
Downstream, the refining segment posted slightly lower profits versus the prior year, as weaker margins took a toll. Similarly, earnings from chemicals manufacturing dipped a tad on lower margins. While on the surface uneventful, the story in these segments is more about the modest expansion plans taking place that mirror Exxon's long-term playbook and prospects.
Although results for the quarter and the year were subpar, they likely marked the bottom of the industry cycle. We estimate share net of $3.95 a share for Exxon Mobil in 2017, with improved performance expected out to the later years of the decade, assuming firm to somewhat higher oil prices. All told, the stock offers good risk-adjusted long-term total return possibilities, and is suitable for conservative investors seeking a weighting in energy.
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 2015 was as follows: crude oil, 2.3 million barrels (+11% vs. ’14); natural gas, 10.5 billion cubic feet (-6% vs. ’14). Reserves as of 12/31/15 were 24.8 billion barrels of oil equivalent, 59% oil, and 41% gas. The 10-year average reserve replacement rate is 115%. The daily refinery runs in 2015 were as follows: 4.4 million barrels (-1% vs. ’14); product sales, 5.8 million barrels (-2% vs. ’14); chemical sales, 24.7 million tons (+2% vs. ’14).
