Higher Oil and Gas ExxonMobil Trading Profits and Production in 2023

Energy giant ExxonMobil, the largest U.S. oil company, reported a better-than-expected $36 billion profit for 2023 boosted by fuels trading and higher oil and gas production. For the fourth quarter XOM EPS beat by $0.28 but missed on revenue expectations. Exxon Chief Executive Darren Woods said the industry “saw energy prices and refining margins start to normalize in 2023.” Earnings across the energy space have been rebalancing by the slump in global natural gas and crude prices since last year’s run up. The energy giant in 2023 has been busy shoring up the future with two deals aimed to boost output.

Both deals are all stock, there was the much-anticipated purchase of shale giant Pioneer Natural Resources for $59.5 billion and earlier the acquisition of carbon pipeline operator Denbury for $4.9 billion. Growth again driven by projects in Guyana and the Permian. Fellow oil giant Chevron has also been busy on the acquisition trial, CVX also reported lower earnings today along with Phillps 66 (PSX).

ExxonMobil Inc. (NYSE: $XOM) Reported Earnings Before Open Friday

Exxon Q4 23 Earnings:

Highlights

  • For the fourth quarter, Exxon reported a profit that beat analysts estimates by 27 cents at $2.48 per share, or $9.96 billion, compared to $14.04 billion, or $3.40 per share, from a year earlier.
  • Adj EPS: $2.48 (est $2.22)
  • Revenue: $84.34B (est $86.07B)
  • Exxon results included a $2.5 billion impairment charge for California properties that it has been trying to sell for more than a year. Excluding that charge, annual income fell 35% to $38.57 billion.
  • Exxon’s trading division delivered a $1.1 billion boost to operating profit from its fuels business. The company’s decision to combine global trading in a single division is paying off, Chief Financial Officer Kathryn Mikells told Reuters.
  • “That is definitely something that we would expect to see on an ongoing basis embedded in our results,” Mikells said. Gains came from revising how its specifies and moves fuels, she added.
  • The company also exceeded its $9 billion cost cut target from 2019 by $700 million.
  • Exxon distributed $32 billion to shareholders via buybacks and dividends last year, up from $29.8 billion a year earlier.
  • Launched new MobilTM Lithium business with the potential to supply up to one million EVs per year by 2030
  • Planned $23 billion to $25 billion in capital spending this year to prepares for 2025 projects.
  • On Track To Close Pioneer Acquisition Around Mid-Year
  • Production 3,824 KOEBD
  • The debt-to-capital ratio was 16%, and the net-debt-to-capital ratio was 5%, reflecting a period-end cash balance of $31.6 billion.

XOM Stock Market Reaction

  • $101.97 ▼ -0.42 (-0.41%) February 2 · Market Closed
  • $101.97 ▼ -9.95 (-8.89%) past year
  • $101.97 ▲ +26.05 (+34.31%) past 5 years

Exxon’s Buying Spree

Exxon has put together two big deals back-to-back. It agreed to buy shale rival Pioneer Natural Resources for $59.5 billion and carbon pipeline operator Denbury for $4.9 billion.

“The whole strategy is around making sure that we have the best portfolio and the most resilient portfolio,” said Exxon Chief Executive Darren Woods on a call to discuss results.

The all-stock acquisitions have not hurt the company’s balance sheet with Exxon’s cash reserves up 10% over the second quarter to $33 billion. Chief Financial Officer Kathryn Mikells said. “We feel really good about our cash balance. It puts us in a good position to ultimately ensure we have the flexibility we need when eventually the commodity cycle turns against us.”

Pioneer Natural Resources

Exxon Mobil agreed to buy Pioneer Natural Resources for nearly $60 billion in an all-stock merger. The deal is expected to close in the first half of 2024, the companies said in a release. Exxon said its production volume in the Permian Basin would more than double to 1.3 million barrels per day once the transaction closes. The deal was Exxon’s biggest since its acquisition of Mobil.

Pioneer transaction transforms Exxon Upstream portfolio

Denbury

In November, ExxonMobil completed the acquisition of Denbury, Inc. for $4.8 billion of ExxonMobil stock, based on the share price at closing. The company now has the largest owned and operated carbon dioxide (CO2) pipeline network in the United States at 1,300 miles, including nearly 925 miles in Louisiana, Texas and Mississippi, one of the largest U.S. markets for CO2 emissions. The company also has access to more than 15 strategically located onshore CO2 storage sites

Production

  • Increased Guyana and Permian production by 18% vs. 2022 and achieved record annual refinery throughput
  • Exxon’s Pioneer acquisition will more than double Exxon’s Permian production to 1.3 million barrels of oil and gas per day after the acquisition is concluded in the first half of next year.
  • Net production in the fourth quarter was 3.8 million oil-equivalent barrels per day, an increase of 136,000 oil-equivalent barrels per day compared to the prior quarter on favorable entitlement effects and growth in Permian and Guyana. Payara, the third Guyana development, started up in November ahead of schedule with production reaching nameplate capacity of 220,000 barrels per day in mid-January.
  • Higher volume contributions from improved portfolio mix added nearly $1 billion, as growth from Guyana and Permian more than offset divestments. Net production in 2023 was 3.7 million oil-equivalent barrels per day, in line with prior year. Production increased 111,000 oil-equivalent barrels per day, excluding impacts from divestments, entitlements, and government-mandated curtailments. Permian and Guyana combined production grew 18% versus 2022

Lithium

  • In the fourth quarter, ExxonMobil announced its new MobilTM Lithium business with plans to become a leading producer and grow U.S.-based supplies of lithium for the global battery and EV markets.
  • The company’s advanced production approach has the potential to produce vast supplies of lithium with fewer environmental impacts than traditional mining operations1. Work is underway for the first phase of lithium production in southwest Arkansas, an area known to hold significant lithium deposits.
  • The company is planning first production for 2027. By 2030, ExxonMobil aims to produce enough MobilTM Lithium with the potential to supply approximately one million EVs per year.

Financial

  • Upstream fourth-quarter earnings were $4.1 billion, a decrease of $2.0 billion from the third quarter. Identified items reduced earnings by $2.1 billion this quarter, mainly from the impairment of the idled Santa Ynez Unit assets in California due to regulatory challenges restarting production and distribution.
  • Earnings excluding identified items were $6.3 billion, an increase of $127 million. Higher volumes and improved mix, mainly from Guyana and Permian growth, and stronger gas realizations more than offset lower crude realizations, unfavorable tax impacts, and year-end inventory effects.
  • Compared to the same quarter last year, earnings decreased $4.1 billion. Identified items reduced earnings by $2.1 billion this quarter, compared to a reduction of $0.6 billion in the fourth quarter of 2022. Earnings excluding identified items were $6.3 billion, a decrease of $2.5 billion, primarily due to lower natural gas prices.
  • Higher Permian and Guyana volumes and less unfavorable year-end inventory effects provided a partial offset. Net production was flat compared to the same quarter last year. Excluding the impacts from divestments, entitlements, and government-mandated curtailments, net production grew about 70,000 oil-equivalent barrels per day.
  • Full-year earnings were $21.3 billion, $15.2 billion less than 2022. Identified items for the year reduced earnings by $2.3 billion, compared to an unfavorable $2.9 billion impact last year. Excluding identified items, earnings decreased $15.8 billion on lower liquids and natural gas realizations, and unfavorable unsettled derivatives mark-to-market effects of $2.4 billion, primarily from the absence of favorable impacts in the prior year.
  • The company has been selling assets as it focuses on more lucrative projects in U.S. shale and in Guyana, and it recently put its Italy refinery up for sale.
  • Exxon concluded in the third quarter the sale of a refinery in Thailand and received $900 million in proceeds, raising asset sales this year to $3.1 billion.
  • Refining throughput for the year was 4.1 million barrels per day, up 38,000 barrels per day from 2022. The record throughput on a current refinery circuit basis was supported by strong reliability and the completion of the 250,000 barrels per day Beaumont refinery expansion in the first quarter of 2023.
  • In addition, with the December completion of the 1.5 million barrels per day strategic Permian crude venture project, both the Beaumont and Baytown refineries have expanded access to advantaged Permian feedstocks.

Chemicals

Chemical Products fourth-quarter earnings were $189 million compared to $249 million in the third quarter. Identified items mainly associated with asset impairments and other financial reserves reduced earnings by $388 million. Earnings excluding identified items were $577 million for the quarter, an increase of $328 million from the third quarter. Margins improved from lower U.S. feed costs and strong performance product sales. Lower overall seasonal sales were partly offset by new volumes from the recently completed Baytown expansion.

Stock Repurchases and Dividends

  • The Corporation declared a first-quarter dividend of $0.95 per share, payable on March 11, 2024, to shareholders of record of Common Stock at the close of business on February 14, 2024. Including the 4% increase in fourth-quarter dividend, the company has increased its annual dividend for a peer-leading 41 consecutive years.
  • Generated strong cash flow from operations of $13.7 billion and free cash flow of $8.0 billion in the fourth quarter. For the full year, cash increased $1.9 billion with free cash flow of $36.1 billion.
  • Peer-leading 2023 shareholder distributions of $32.4 billion included $14.9 billion of dividends, and $17.4 billion of share repurchases consistent with announced plans.

Capex

Exxon CEO Woods signaled optimism about the coming year. He raised Exxon’s spending target after boosting capital spending in the most recent quarter by 4% from a year ago. Full-year capital expenditures in 2023 were $26.32 billion.

XOM exceeded its $9 billion cost cut target from 2019 by $700 million compared with 2019 levels and pledged to continue cost-cutting. Its full-year capital expenditures will finish at the top end of its $23 billion to $25 billion guidance, executives said.

Outlook

Woods said, “opportunistically accelerated drilling activity” in its two core oil production areas, the U.S. Permian Basin and Guyana, and kick-started lithium production to supply electric vehicle batteries.

Analysts on XOM

Exxon “closed 2023 on a strong note” and enters 2024 in a strong financial position, said Peter McNally, Global Sector Lead for Industrials Materials and Energy at Third Bridge. “But the big focus for investors will be the closing of the acquisition of Pioneer Natural Resources,” which will dramatically increase investments in the U.S. Exxon expects to close the deal in the second quarter.

Exxon Turnaround

Exxon’s spectacular earnings is a turnaround after it lost a historic proxy fight in 2021 to investment firm Engine No. 1, which mocked Exxon’s finances and argued it had no long-term strategy. This followed the oil-market collapse in 2020 where oil prices were negative for a few days. This led to Exxon’s first annual loss in at least four decades, of more than $22 billion. XOM was removed from the Dow Jones Industrial Average that year, after nearly a century in the index, with its shares falling as much as 55%.

From there Exxon shares rose about 80% for the year, the fourth-highest stock-price increase in the S&P 500 index, only behind oil companies Occidental Petroleum Corp. , Hess Corp. and Marathon Petroleum Corp. , according to Dow Jones data. Exxon also banked $76.8 billion in cash from its operations, behind only Apple and Microsoft so far, according to S&P Global Market Intelligence.

Perhaps a lesson, if you aren’t aware already that organizations like Engine No. 1 are out of touch beyond spreadsheets and wishful thinking.

We refer back to what Woods said last year in an address on that point;

“The investments we’ve made, even though the pandemic, enabled us to increase production to address the needs of consumers. Rigorous cost control and growth of higher-margin petroleum and chemical products also contributed to earnings and cash flow growth in the quarter. At the same time, we are expanding our Low Carbon Solutions business with the signing of the largest-of-its-kind customer contract to capture and permanently store carbon dioxide, demonstrating our ability to offer competitive emission-reduction services to large industrial customers around the world,” concluded Darren Woods, chairman and chief executive officer.

ExxonMobil Huge Liza Field Acreage in Guyana

  • Sailfin-1 Encountered approximately 312 feet (95 meters) of hydrocarbon-bearing sandstone and was drilled in 4,616 feet (1,407 meters) of water.
  • Yarrow-1 Encountered approximately 75 feet (23 meters) of hydrocarbon-bearing sandstone and was drilled in 3,560 feet (1,085 meters) of water.
  • A third project, Payara, is expected to start-up by the end of 2023
  • A fourth project, Yellowtail, is expected to start-up in 2025.
  • ExxonMobil is currently pursuing environmental authorization for a fifth project, Uaru.

Liam Mallon, president of ExxonMobil Upstream Company. “We are committed to responsibly and safely developing this world-class resource to help meet global demand for secure, reliable and lower-emission energy. Our investments through the pandemic have allowed us to increase supply at this critical time, while creating value for the people of Guyana, our partners and shareholders.”

Liza HESS EXXON

ExxonMobil said their first two sanctioned offshore Guyana projects, Liza Phase 1 and Liza Phase 2, are now producing above design capacity and achieved an average of nearly 360,000 barrels of oil per day in the third quarter.

By the end of the decade, ExxonMobil expects Guyana’s oil production capacity to be more than one million barrels a day.

Source: ExxonMobil AlphaStreet

Live From The Pit 

From The TradersCommunity News Desk