Exxon Mobil Profits Impacted by Lower Natural Gas Prices and Higher Chemical Input Costs

Energy giant ExxonMobil, the largest U.S. oil company, reported lower-than-expected third quarter earnings Friday. Earnings across the energy space have been afflicted by the slump in global natural gas and crude prices since last year’s run up. Lower natural gas realizations and industry refining margins adversely impacted earnings. XOM announced a $9.1 billion third-quarter profit, missing analysts’ estimates for the second quarter in a row, and down from 54% from a year ago. The energy giant 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 Tuesday

Exxon Q3 2023 Earnings

“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 the conference call to discuss results.

Highlights

  • Adj EPS: $2.27 (est $2.36)
  • Revenue: $90.76B (est $94.35B)
  • Boosts quarterly dividend to 95C/Share From 91c (est 94c)
  • Production 3,688 KOEBD, Est 3,720 Q3 net production increased by ~80K boe/day, driven by Guyana and the Permian Basin,
  • Q3 worldwide Upstream earnings plunged 50% Y/Y to $6.12B, as U.S. Upstream fell 49% to $1.56B and Non-U.S. Upstream dropped 51% to $4.56B.
  • Chemical earnings $249 million, down from $828 million in the second quarter due to higher raw material costs. U.S. Chemical Products fell 47% to $338M and Non-U.S. Chemical Products slid to negative $89M from $177M a year earlier
  • Q3 worldwide Energy Products earnings tumbled 58% Y/Y to $2.44B, as U.S, Energy Products fell 55% to $1.35B and Non-U.S. Energy Products sank 61% to $1.08B, with the company citing weaker industry refining margins and unfavorable foreign exchange impacts.
  • Exxon said it delivered the best-ever Q3 global refinery throughput at 4.2M bbl/day.

XOM Stock Market Reaction

  • $105.55 ▼ -2.05 (-1.91%) today
  • $105.55 ▼ -5.15 (-4.65%) past year
  • $105.55 ▲ +23.6 (+28.8%) 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

Last quarter Exxon announced the takeover of carbon capture specialists Denbury in an all-stock deal that values the Plano, Texas-based group at around $4.9 billion. The deal is likely to close in the fourth quarter of this year, Exxon said.

Production

  • 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.
  • Higher production from Guyana and the Permian provided a partial offset to lower crude and natural gas realizations and divestments, compared with last year, the company said.

Financial

  • 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.
  • CFO Mikells said she did not anticipate an acceleration of asset sales following the Pioneer acquisition.
  • Strong earnings drove cash flow from operations of $16.0 billion and free cash flow of $11.7 billion, an increase of $6.6 billion and $6.7 billion respectively versus the second quarter.
  • The debt-to-capital ratio remained at 17% and the net-debt-to-capital ratio was 4%, reflecting a period-end cash balance of $33.0 billion.

Stock Repurchases and Dividends

  • Third-quarter shareholder distributions of $8.1 billion included $3.7 billion of dividends and $4.4 billion of share repurchases.
  • Year-to-date share repurchases were $13.1 billion, consistent with the company’s plan to repurchase $17.5 billion of shares in 2023.
  • The Corporation declared a fourth-quarter dividend of $0.95 per share, payable on Dec. 11, 2023, to shareholders of record of Common Stock at the close of business on Nov. 15, 2023. The company has increased its annual dividend for 41 consecutive years, including this increase of $0.04 per share, or 4 percent.

Capex

Exxon said it achieved a targeted $9 billion reduction in costs 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

“We are very comfortable overall with our capital allocation approach,” Chief Financial Officer Kathryn Mikells said. “So we’re committed to continuing that balanced approach.”

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

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