Is Exxon Mobil Worth the Money?

Exxon Mobil (XOM) declared its first quarter 2016 results on 29th April. The result was very much able to please the investors and the uptrend of the stock continued in the same way as it did before the result. The company reported earnings of $1.8 billion or $0.43 per diluted share which was 63% down from the first quarter of 2015 but exceeded analyst estimates by a great margin of $0.12 per share or 38.71%. Similarly, revenues were $48.7 billion, down 28% year-over-year due to weak oil but beat estimates by a whopping $3.3 billion.

The best performing segment for Exxon Mobil was the Chemicals segment.
Earnings for the Chemicals segment increased 38% year-over-year, and 41% from the previous quarter to $1,355 million. That was about 62% of the company’s total Q1 earnings. The factors driving this success of the Chemicals segment of Exxon Mobil were higher sales volumes and the obvious strength in profit margins. Upstream products like oil & gas act as raw materials for the Chemicals segment and the same have gone cheaper as commodity prices plunged compared to last year's first quarter. In addition to these factors, the increase in demand for specialty and commodity products and the cost benefits from both gas and liquids cracking advantages at its integrated sites were well captured by Exxon Mobil.

The upstream and downstream segments didn’t perform well at all. The Upstream segment was in the red compared to the huge $2.85 billion profit in the same quarter of last year. Most of the earnings decline in the upstream segment was due to lower liquids and gas realizations which decreased the earnings by $ 2.6 billion. The production of liquids increased by 261,000 barrels per day, while natural gas production was down 1.1 billion cubic feet per day from 2015. Now, since natural gas hasn’t suffered as much a price decline all over the world as crude oil has, the reverse of this production mix trend could have kept the company in green.

The Downstream segment earnings were reduced to nearly half of what they were last year in the first quarter. Here, the weaker refining margins proved to be the sole contributor to the decline in earnings. Offsetting this effect were the favorable volume mix and foreign exchange effects which had a positive $100 million effect on the Downstream segment earnings.

Cash Flows and CAPEX:

As I said earlier, Exxon Mobil has pleased its shareholders enough to make them at least hold the stock. The cash flow of $5.0 billion from operations and asset sales was a big success in my view. Now the company cash balances are $1.1 billion higher than those last year at the end of the first quarter. And the company was able to distribute $3.1 billion to the shareholders too. That was effectively $0.73 per share, 5.8% up from Q1 2015. With Exxon Mobil, the shareholders have had at least this one thing on their side. Exxon Mobil has increased its annual dividend payment to shareholders for 33 consecutive years, even throughout the economic crisis of 2008 and 2009.

Of course, the raise given in dividend payment would have been possible also because the company had its capital budget sorted out last quarter. The company successfully slashed its capital spending by 33% to $5.1 billion without compromising with the required increase in production in order to achieve higher cost efficiency.

Market outlook and conclusion:

Oil is pegged to move up from here. Whether it will be slow or fast, it will be moving northward for a long time to come now. Crude oil is already around 50% up since the start of the year. According to OilPrice.com, the collapse of the rig count and depressed drilling activity has already knocked about 700,000 barrels per day of oil production offline. A significant fall in total US production from 9.43 million barrels per day in 2015 to 8.04 million barrels per day is expected by the U.S. Department of Energy in 2017. This is also including the rising output from the Gulf of Mexico.

Therefore, with the demand being ever-increasing and the EIA expecting oil production to fall through 2017 despite a possible increase in rig count, we may witness more upside to the oil prices. Exxon has proved its mettle, in the toughest of oil market situations. Now, the situation is looking a lot better and bound to get better thanks to the efforts being put in especially by the US oil companies. Thus, the fundamentals of the oil market are going to improve over the course of this year. And so we can expect much better results for Exxon's upstream operations in the coming quarters.
Published on May 11, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

Posted in ...