We expect ExxonMobil Corporation's XOM fourth-quarter 2017 results to show an improvement in earnings from its upstream operations outside the United States. Over the first nine months of 2017, the largest publicly traded energy firm generated 48% of total profit from its non-U.S. based upstream businesses.
Also, we expect the company to witness narrower losses in its upstream operations in the United States. It is to be noted that ExxonMobil is set to release fourth-quarter 2017 results before the opening bell on Feb 2. (See more in What's in Store for ExxonMobil This Earnings Season?)
Upstream Business
The core operations of ExxonMobil include upstream businesses. This segment reflects the company’s activities related to exploring and developing prospective oil and natural gas resources.
From the upstream operations — both in and outside the United Sates — the company reported earnings of roughly $9 billion in the first nine months of 2017. The profits represent almost 80% of total earnings garnered during the period.
How Has Upstream Fared in Q3?
Non-U.S. Operation: During the third-quarter of 2017, ExxonMobil reported earnings of $1.8 billion from upstream activities outside the United States. This marked an improvement of 64.5% from the year-earlier profit of $1.1 billion.
However, non-U.S. profit from the segment lagged behind the Zacks Consensus Estimate of $1.9 billion.
U.S Operation: From the domestic operations, ExxonMobil reported a loss of $238 million, narrower than the year-ago quarter’s loss of $477 million.
However, its third-quarter 2017 loss was wider than the Zacks Consensus Estimate of $159 million.
Factors that Boosted Q3 Results: The improvement in year-over-year performances were primarily supported by lower downtime and ramp up in Australian projects. This was partially negated by field decline.
Healthy Q4 Oil & Gas Prices
West Texas Intermediate (WTI) crude increased almost 20% in the October-to-December quarter of 2017, per The U.S. Energy Information Administration (EIA). Through most of November and the entire December, the commodity traded above the $55-per-barrel psychological mark. The extension of the production cut deal by OPEC players supported the rally in crude.
On Nov 30, 2017, OPEC members met non-OPEC players to decide on an extension of the crude production cut accord, first signed in late 2016, beyond the first quarter of 2018. More than 20 oil producers, including leading exporters like Russia and Saudi Arabia, attended the meeting. As expected by most analysts, all crude exporters decided to extend the deal through 2018-end. Saudi Arabia, Russia and their allies have pledged to put 1.8 million barrels a day of crude oil out of the market through the end of this year.
Like oil, natural gas price was healthy, as reflected by the price gain of 25.5% through fourth-quarter 2017.
Forecast for Q4 Oil & Gas Production
Natural Gas Production: The Zacks Consensus Estimate for natural gas production available for sale is at 10,794 million cubic feet per day (MMcf/D), higher than the respective 9,585 MMcf/D and 10,424 MMcf/D for the third-quarter 2017 and the fourth quarter of 2016.
Production of Crude & Natural Gas Liquids: The Zacks Consensus Estimate for daily net production of crude and natural gas liquids stands at 2,379 thousand barrels per day (B/D), higher than 2,280 thousand B/D in the prior quarter but lower than 2,384 thousand B/D in the year-ago quarter.
Upstream Results to Improve in Q4
The prices and production of oil and natural gas are the two key parameters that determine the fate of upstream operations.
Non-U.S. Operation: The Zacks Consensus Estimate for earnings after tax from non-U.S. upstream operations stands at $2.4 billion, higher than $1.8 billion reported in the prior quarter and $1.7 billion in the year-ago quarter.
U.S. Operation: Also, for upstream operations in the domestic region, the Zacks Consensus Estimate for after-tax loss stands at $114 million, significantly narrower than the loss of $238 million and $2.3 billion reported in the preceding quarter and year-ago quarter, respectively.
We expect the upstream business of ExxonMobil — a Zacks Rank #3 (Hold) stock — to improve in Q4 on a healthy pricing scenario for oil and natural gas. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings & Revenue Projections
The Zacks Consensus Estimate for fourth-quarter earnings of $1.06 per share reflects growth of 17.8% year over year. Also, the Zacks Consensus Estimate for sales of $75.3 billion indicates a 23.4% year-over-year increase.
Earnings Schedule for Other Major Energy Players
Chevron CVX will likely report fourth-quarter 2017 results on Feb 2. Meanwhile, integrated energy players like BP plc BP and Royal Dutch Shell plc RDS.A are expected to report results on Feb 6 and Feb 1, respectively.
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