Shares of Exxon Mobil (XOM - Free Exxon Mobil Stock Report) fell moderately after the oil giant and Dow-30 component reported second-quarter earnings per share of $1.55, versus our estimate of $2.00 and the year-earlier tally of $1.80. Weaker refining margins and reduced volumes associated with extra-heavy periodic plant maintenance hurt downstream profits. The pullback in refining earnings is not exclusive to Exxon. A number of other companies in the industry have reported less impressive results from refining lately. Performance was also dampened by lower petroleum product sales. In 2012, Exxon sold part of its downstream business in Japan, given weak prospects for a surge in demand in that nation. Elsewhere in the downstream segment, chemicals manufacturing profits eased somewhat, excluding a gain associated with the sale of assets in Japan.
Upstream, the story was unimpressive, as well. Profits from pumping oil and natural gas fell 25% in the June quarter, as the absence of a gain in Angola and higher operating expenses took a toll. The company didn't exactly light up the scoreboard in terms of volumes pumped, either. On an oil-equivalent basis, production fell nearly 2% from the prior year. Exxon could probably produce more natural gas if it so desired, but low prices in North America for the fuel appear to be hindering an all-out effort.
It should be noted that the company's continued elevated spending levels have the potential to push production higher over time. What oftentimes happens with drilling ventures is that the benefits of investments accrue unevenly, with an occasional spike in volumes as one, or more, major projects come on line. But for much of time, as has been the case lately, a gradual erosion of the production base occurs. In any case, Exxon is still producing 2.2 million barrels a day of oil and nearly as much natural gas, on an equivalent basis. Those are massive quantities on any scale.
As far as stock repurchases go, the company spent $4.0 billion to buy back 45 million shares in the second quarter. In the September interim, the oil giant anticipates buying back around $3 billion worth of stock. The expected slowdown in the pace could temporarily dampen enthusiasm for the stock. Given the second-quarter profit shortfall, we have reduced our full-year earnings-per-share estimate for Exxon Mobil, from $8.15 to $7.45.
About The Company:Exxon Mobil Corp. is the largest publicly traded oil company in the world. It also owns 69.6% of Imperial Oil (Canada). Daily production in 2012 was as follows: crude oil, 2.4 million barrels (+1% vs. ’11); natural gas, 12.1 billion cubic feet (+31% vs. ’11). The average realized 2012 prices in the U.S. were: oil, $55.54 per barrel; natural gas, $3.85 per mill. cubic feet. Reserves as of 12/31/12 were 24.8 billion barrels of oil equivalent, 47% oil, and 53% gas. The reserve life at current production rates is about 15 years. The 10-year average reserve replacement rate is 121%. The daily refinery runs in 2012 were as follows: 5.3 million barrels (-2% vs. ’11); product sales, 6.4 million barrels (flat vs. ’11); chemical sales, 25.9 million tons.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.