Exxon Mobil Will Get Better in the Long Run

Exxon Mobil (XOM) is a better pick among big oil players as it has been making the right moves in order to sustain its performance in a difficult oil environment. Let’s take a look at the reasons why it makes sense to go long on Exxon Mobil.

Operationally strong

Exxon’s rig count has come down to 34 rigs, down 10 rigs compared to the first quarter of this year. The company is trying to capture both cost efficiencies and productivity improvements in order to reduce costs in this low price environment.

On the other hand many other players of the industry, who had ramped up capacity fast in its heydays, had to cut their rig counts much more than Exxon Mobil.

This shows that Exxon Mobil was able to execute its learning from operations very well and has the economics of its investments still in control. The company has a record of industry-leading unit cost performance maintained over the last several years. Its unit cost is on a downward trend year-to-date down by almost 9% from the end of second quarter of the last year.

A look at the pain points

But natural gas production was down 622 million cubic feet per day from the second quarter of 2014 or 5.8% to 10.1 billion cubic feet per day in the recently concluded quarter. Regulatory restrictions in the Netherlands caused this drop in gas production. Upstream earnings were $2 billion in the second quarter of 2015, down $5.9 billion from the second quarter of 2014.

Also, in the second quarter 2015, Exxon Mobil earned $4.2 billion as net earnings. This was down 52% compared to $8.8 billion earned during the same period last year. Lower earnings were attributed to the impact of comparatively weaker upstream realizations and lower gains from asset management initiatives. However the company did well in the Downstream and Chemical segments where earnings increased significantly from the second quarter of 2014 due to higher margin realisation, continued strong demand, and the quality of the company’s product and asset mix.

The positives

At Downstream, earnings were $1.5 billion, up $795 million from the second quarter of 2014. Despite a 2% drop in petroleum products sales, earnings increased primarily due to stronger margins.

Chemical earnings of $1.2 billion were $ 405 million higher than last year. This increase was largely driven by increased margins and volume mix effects partly offset by unfavourable foreign exchange effects. However, here too, the sale of prime products was 61,000 metric tons down at 6.1 million metric tons year over year.


Thus, Exxon’s positives outweigh the negatives. This is why investors should consider remaining invested in this oil stock in order to enjoy long-term gains.

Published on Oct 14, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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