Exxon Mobil: Will It Turnaround?

Exxon Mobil (XOM) announced fourth quarter ended December 31, 2015 net earnings of $2.8 billion or $0.67 per diluted share, down 58 percent year-over-year from $6.6 billion or $1.56 per diluted share.

Exxon Mobil declared fourth quarter of 2015 total operating cash flows and proceeds from the sale of non-core assets of $5.1 billion that also includes proceeds linked with asset sales worth $785 million compared to key proceeds of $7.7 billion from operating cash flows and non-strategic asset sales.

Declining due to the weakness

Exxon Mobil reported continued decline in its bottom line primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising refining expenditures and thus, forcing the company to lay off its non-core assets.

Net earnings for fourth quarter of 2015 declined $3.8 billion to $2.8 billion compared to $6.6 billion of net earnings during the same period last year, primarily driven by the weaker upstream earnings being somewhat offset by solid downstream results.
The sequential decline in earnings is due to weaker earnings all through the company’s key business segments.

Exxon’s upstream earnings for the fourth quarter of 2015 declined $4.6 billion depicting weaker realizations coupled with the lack of the impact from the previous year deferred income tax effects. The year-over-year total upstream volumes grew 4.8% including, liquids volume increasing by over 299 kbd and volumes for natural gas falling approximately 631 mcfd.

The year-over-year contraction in total earnings for the quarter is due to the worsening global commodity demand and pricing environment coupled with the rising key liquids refining expenditures. Exxon successfully grew its year-over-year upstream volume which were somewhat offset by continued decline in the bottom line for the upstream segment.

The upstream earnings for Exxon Mobil declined $501 million to $857 million during the quarter and driven by weaker realizations that were somewhat offset by greater volumes and other key items. The fourth quarter of 2015 upstream volumes grew 8.4% sequentially to 4.2 Moebd from third quarter of 2015 volume of 3.9 Moebd and including, the liquids growth of over 150 kbd and natural gas growth of over 1.1 bcfd.

Downstream earnings for the fourth quarter of 2015 grew by $854 million to $1.4 billion compared to $497 million of downstream earnings in fourth quarter of 2014 and mainly driven by attractive volume mix, poor maintenance actions and solid refining margins. However, downstream earnings declined sequentially by $682 million to $1.4 billion in the fourth quarter of 2015 as against net earnings of $2.0 billion in third quarter of 2015 and particularly driven by weaker company margins.

The upstream earnings for Exxon Mobil declined sequentially despite satisfactory growth in upstream volumes was driven by weaker global realized prices for key fuels and expanding refining expenditures. Downstream earnings grew year-over-year but declined sequentially owing to the near-term commodity pricing volatility and uncertainty which is believed to continue in the near future as well.

Weak cash flow

The consolidated cash flows for Exxon Mobil allows for strategic funds distributions and investments coupled with inducing superior financial flexibility for investing all through the cycle. The company grew its 2015 dividend per share year-over-year by 6.7% over last year. However, it has shortened the share buyback program for the year and delivering $6.5 billion of free cash flows for the complete fiscal year 2015. Going forward, Exxon Mobil forecast 25% or $7.9 billion reduction in 2016 estimated capital spending to $23.2 billion over last year.

Exxon Mobil is strategically adding superior-value production capabilities to cater to the lasting demand growth including, six 2015 key project start-ups allowed for 300 Koebd of working interest capability, Bakken and Permian development schedules provided 85 Koebd of total production, Banyu Urip CPF facility began operations during the fourth quarter of 2015 and growing to complete capacity and the company estimates six key project start-ups during 2016. Exxon has successfully completed Black Sea drilling in Romania and started production test program in Argentina. Moving ahead, the company captured 521,000 total acres in Canje Block at Guyana and acquired 579,000 total acres in deepwater Block 14.

The well-planned usage of operating cash flows for the quarter in optimizing the current operations while acquiring major refining operations at key identified sites is believed to drive long-term sustainable growth for the company while delivering significant shareholder returns.

The consensus estimate among 29 polled investment analysts evaluating Exxon Mobil Corporation suggests investors to “Hold” their position in the company. This consensus estimate is maintained since the investment analyst’s sentiments declined on Nov 29, 2013. The earlier consensus estimate suggested that the company will outperform the market.


Overall, the investors are advised to “Hold” their position in Exxon Mobil Corporation looking at significant company’s growth prospects with PEG ratio of 1.16 which is comparable to the industry’s growth average of 0.38, depicting healthy company growth. The trailing P/E and forward P/E ratios of 20.80 and 18.45 respectively signifies logical company valuation and comparable to the industry’s average P/E of 22.04. The profit margin of 6.56% seems satisfactory. However, Exxon needs to optimize its debt-burdened balance sheet with significant total debt of $34.31 billion against weaker total cash position of $4.30 billion only, restricting the company to continue with its daily operations profitably.
Published on Mar 8, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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