U.S. energy behemoth ExxonMobil Corp.'s (XOM) second quarter earnings shot up 41% year over year (from $7.6 billion to $10.7 billion), driven by higher commodity price realizations and improved refinery margins.
The world's largest publicly traded oil company posted earnings of $2.18 per share, showing a substantial improvement from the year-earlier earnings of $1.60. However, the quarterly results were below the Zacks Consensus Estimate of $2.34.
Total revenue in the quarter registered a 35.7% year-over-year improvement to reach $125.5 billion, comfortably surpassing the Zacks Consensus Estimate of $115.7 billion.
Operational Performance
Upstream: Segmental earnings were $8.5 billion, up substantially from the $3.2 billion a year ago. This primarily reflects higher crude oil/natural gas realizations, partially offset by production mix and volume effects.
Production averaged 4.4 million oil-equivalent barrels per day (MMBOE/d), up 10.0% year over year, on the back of the Qatar liquid natural gas project and growing unconventional gas portfolio. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production surged more than 12%.
Downstream: The segment recorded profit of $1.4 billion as against $1.2 billion in the year-ago period. The improvement reflects higher industry refining margins as well as positive volume and mix effects.
ExxonMobil's refinery throughput averaged 5.19 million barrels per day, almost unchanged from the year-earlier level. Total refined product sales of 6.331 million barrels per day were up slightly from the year-ago level of 6.304 million barrels per day.
Chemical: This unit contributed $1.3 billion to the company’s profits, down 3.4% year over year. The underperformance was mainly due to lower sales volumes, partially mitigated by improved margins, which boosted segment earnings by $120 million.
Cash Flow
During the quarter, ExxonMobil generated cash flow from operations and asset sales of $14.4 billion and returned more than $7 billion to shareholders through dividends/share purchases. Capital spending rose a whopping 58% year over year to $10.3 billion.
Outlook
ExxonMobil currently retains a Zacks #3 Rank (short-term Hold rating).
Irving, Texas-based oil and natural-gas powerhouse, ExxonMobil –– the largest U.S. oil firm by market value ahead of Chevron Corp. (CVX) –– is the best-run integrated oil company in the world given its track record of superior return on capital employed. It has long been a core holding for investors seeking a defensive name with continued dividend growth.
Given ExxonMobil’s significant share in the upstream business, we believe it will retain its leverage to higher oil prices going forward. Recently, Exxon announced two major oil discoveries and a gas discovery at its Deepwater Hadrian North and South prospects in the GoM.
The resource potential of the Keathley Canyon blocks, where the prospects are located, is believed to be in excess of 700 MMBOE (350 MMBOE net). More than 85% of this resource is believed to be oil. Exxon management remains highly optimistic about the discovery, which is one of the largest in the GoM in the last decade, and plans to work closely with other companies through joint ventures for maximum development and utilization of the resource.
Again, the company concluded the acquisitions of two Phillips units, nearly doubling its Marcellus acreage footprint to more than 700,000 net acres.
However, as access to new energy resources becomes more difficult, ExxonMobil, like most of its peers, will face headwinds to replace its reserve. Given its large base, achieving growth in oil and natural gas production has been a challenge for the company over the last several years.
With the established oil-producing regions of Europe and North America well beyond their prime, the search for opportunities has pushed ExxonMobil into riskier regions. Hence, we maintain our long-term Neutral recommendation for the company.
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