Exxon Mobil: a Big Bet

Exxon Mobil (XOM) announced first quarter ended April 29, 2016 total revenue and other income of $48.7 billion, down 28 percent year-over-year from $67.6 billion of net revenue and other income during the same period last year.

Exxon Mobil declared first quarter of 2016 net income of $1.81 billion or $0.43 per diluted share, down 63 percent year-over-year from $4.94 billion or $1.17 per diluted share in first quarter of 2015.

Impressive growth

Exxon Mobil reported continued year-over-year decline in both its top and bottom lines primarily driven by the ongoing weaker global commodity demand and pricing environment coupled with the rising energy exploration expenditures, eating into the margins of the key energy production and distribution company.

Total first quarter of 2016 earnings for Exxon declined $3.1 billion year-over-year mainly due to weaker upstream and downstream earnings, somewhat offset by superior chemical results.
Further, net earnings for the first quarter of 2016 declined by about $970 million sequentially due to solid chemical financial results somewhat offset by weaker upstream and downstream bottom line results.

Exxon Mobil’s total upstream earnings for the first quarter of 2016 declined $2.9 billion primarily driven by significantly weaker realizations and despite 1.8% growth in total energy volumes including, liquids volume growth of over 261 kbd and natural gas volume decline of nearly 1,104 mcfd.

The continuing weaker global commodity demand and pricing environment is putting downward pressure on the company’s key margins, despite healthy sequential and year-over-year growth in both liquids and gas volumes during the quarter which is believed to recover slowly and steadily with time.

Consolidated upstream earnings of Exxon Mobil for first quarter of 2016 fell $933 million sequentially despite sequential 1.8% increase in total upstream volumes that include liquids volume growth of over 57 kbd and natural gas volume growth of over 121 mcfd due to the continuing weaker worldwide commodity demand and pricing environment along with the expanding energy exploration and refining expenditures.

The company’s total downstream earnings for the first quarter of 2016 declined $761 million year-over-year and fell $445 million sequentially, primarily due to smaller refining margins and greater maintenance expenses, somewhat offset by lesser overall expenditures.

Exxon Mobil is expected to continue to witness declining upstream and downstream earnings both over the short and longer term, given the slowly but steadily improving global commodity demand and pricing environment which would first cover total company costs and gradually deliver profitability.

Positives to watch   

Exxon’s bottom line for the chemical segment grew $373 million year-over-year and improved $392 million sequentially, mainly driven by robust commodities margins, healthy specialty margins, enhanced sales volumes, and smaller expenditures.

Exxon’s notable financial flexibility seems to be the company’s key competitive advantage with significant capacity to uniquely execute healthy growth strategy all through the global commodity cycle and no alteration to its financial philosophy. Further, Exxon Mobil has strong access to international financial markets on lucrative terms.

The energy company has a strong line of projects with four key strategic project start-ups operationally functional year-till-date including, Heidelberg truss spar, Gorgon LNG Train 1, Julia subsea tie-back and Point Thomson Initial Production System. Further, Exxon is attractively pursuing superior-value resource exploration opportunities including, drilling of Liza-2 appraisal well at Guyana, drilling of Raya-1 exploration well at Uruguay and successful bidding on 5 major blocks at U.S. GOM.

Exxon Mobil is expected to drive impressive shareholder value through planned new explorations of attractive resources and an eye-catching financial position with industry-leading credit rating, leverage and total capitalization capabilities.

The international liquids demand by sector and region is expected to grow exponentially with liquids supply still needing a significant push to increasingly cater to the expanding demand for key liquids. However, conventional sources of energy are slowly but steadily continuing to replace non-conventional sources of energy, given their benefit of producing cleaner energy.

Conclusion

Overall, the investors are advised to “Hold” their position in Exxon Mobil Corporation considering the company’s notable long-term growth prospects, but currently weaker financial position with significant total debt of $38.69 billion against feeble total cash position of $3.70 billion only, restricting the company to continue with its daily operations profitably. The profit margin of 6.82% seems satisfactory. The PEG ratio of 1.28 signifies healthy company growth and comparable to the industry’s growth average of 1.43.
Published on May 17, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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