Oil industry leader and Dow-30 component Exxon Mobil (XOM Free Exxon Mobil Stock Report) has reported fourth-quarter earnings of $1.91 a share, versus our estimate of $1.99 and the year-earlier tally of $2.20. The falloff from 12 months earlier arose from both weaker upstream and downstream results. In the upstream segment, pricing wasn't an issue, but profits were hurt by higher costs and a downtick in volumes, mainly of natural gas. Downstream performance was mainly affected by weaker refining margins, which was the case for the year as a whole, too.

Investors seemed disappointed in the report (the stock fell a little on the news), but Exxon largely turned in a solid showing for the quarter and the full year. There are not many companies in the same league as Exxon Mobil, earning $33 billion a year, as it did in 2013. Granted, there have been several years in which the oil giant has done better, but those were during periods of either rising oil prices, strong refining margins, or both. As big as Exxon is, its bottom line is still largely captive to operating conditions.

One bright spot is the improving trend in oil production, where the company posted a 1.5% increase in the fourth quarter, as fields in Canada and Nigeria continued to ramp up. Exxon's heavy spending to achieve relatively small percentage volume gains has been criticized in some quarters, but incremental oil production is being pursued since it delivers the best returns. Overall, the boost in oil volumes pumped is an encouraging sign. A number of major oil and gas projects are due to start up in the next couple of years, as well. Notably, although full-year combined oil and gas volumes fell 1.5%, that was owing to less natural gas production. We are still inclined to believe Exxon can pump greater amounts of natural gas in the United States once prices are sustainably higher.

As noted, the cost of developing projects has become an issue on Wall Street. The company spent more than $42 billion for capital projects and oil exploration in 2013, up 7% from 2012. The big price tag has caused a drop in stock repurchased to $3 billion per quarter, down from $5 billion not that long ago, and the assumption of some short-term debt. But the spending should pay off in the long run, and Exxon's finances remain among the strongest of any corporation in the world. For now, we are maintaining our estimate of $8.00 in share earnings for all of 2014.

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.