Energy giant ExxonMobil, the largest U.S. oil company, reported lower-than-expected second quarter earnings Friday. Earnings across the energy space have been afflicted by the slump in global natural gas crude prices. Lower natural gas realizations and industry refining margins adversely impacted earnings. XOM adjusted earnings were $7.88 billion or $1.94 per share, down 56% from the same period last year and under the consensus forecast of $2.01 per share. Revenues fell 28.3% to $82.92 billion, ahead of analysts’ estimates of $80.2 billion. Production rose around 100,000 boepd from last year to 3.8 million. Growth again driven by projects in Guyana and the Permian.
Lower earnings have been across the big oil board. Chevron Corp (CVX), Shell (SHEL) and TotalEnergies (TTEF) have reported profit falls of 48%, 56% and 49%, respectively.
ExxonMobil Inc. (NYSE: $XOM) Reported Earnings Before Open Tuesday
Exxon Q2 2023 Earnings
“The work we’ve been doing to improve our underlying profitability is reflected in our second-quarter results, which doubled from what we earned in a comparable industry commodity price environment just five years ago,” said CEO Darren Woods.”
Highlights
- Net income $7.88 billion, or 1.94 cents per share versus a record $17.85 billion a year earlier.
- Wall Street was expecting $2.01 per share, Refinitiv Eikon data showed.
- Adj EPS $1.94 (Est $2.01)
- Total Rev & Other Income $82.91B (Est $82.31B)
- Produced 3.7Mln BOED in H1, In Line with Annual Target
- On Track To Deliver $9Bln Of Structural Cost Savings By End Of 2023 Relative To 2019
- Benchmark Brent crude prices averaged $80 a barrel, down from $110 a year earlier.
- Prices for liquefied natural gas (LNG) fell to $11.75 per million British thermal units (mmBtu) from around $33.
- Energy Products of $2.3 billion, down $1.9 billion from the first quarter. “Industry margins declined sequentially from a strong first quarter on weaker diesel margins as Russian supply concerns eased,”
- Chemical Products to $828 million from $371 million in the first quarter with lower feed costs,
- Capital and exploration spending $6.2 billion in the second quarter and $12.5 billion for the first half of 2023,
- XOM has achieved cumulative structural cost savings of $8.3 billion from 2019 levels, nearing its $9 billion target.
- Distributed about $8 billion in cash to shareholders including $3.7 billion in dividends.
“Earnings totaled more than $19 billion during the first half of the year, and we are on track to structurally reduce costs by $9 billion at year end compared to 2019,” he added. “Production is up 20% year-over-year in Guyana and the Permian, and we are playing a leading role in the industry’s energy transition with an agreement to acquire Denbury and with three world-scale CO2 offtake agreements.”
XOM Stock Market Reaction
- $104.09 -1.33(1.26%) Pre-Market
- $104.09 +11.45 (12.36%) past year
- $104.09 +21.08(25.39%) past 5 years
“That is quite a good quarter for us,” Chief Financial Officer Kathryn Mikells told Reuters. Last year aside, she noted: “You would have to go back to the second quarter of 2011 to find the last time we produced this level of earnings in the second quarter.”
Denbury
Earlier this month, 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 oil production 3.7 million barrels of oil equivalent per day (boed) year to date, in line with the company’s annual target.
- Record quarterly production in the Permian and Guyana.
- U.S. Permian basin, delivered 622,000 boed in the quarter
- Guyana, where Exxon plans to increase production by 5% to 400,000 boed by year end.
- The increase was offset by impacts from divestments, the Sakhalin-1 expropriation, and government-mandated curtailments.
Price Realization:
- In the United States, ExxonMobil recorded crude price realization of $73.95 per barrel, significantly lower than the year-ago quarter’s $93.51. The same metric for non-U.S. operations declined to $67.93 per barrel from $89.71.
- Natural gas prices in the United States were $3.20 per thousand cubic feet (Mcf), lower than the year-ago quarter’s $4.80. In the non-U.S. section, the metric improved to $17.39 per Mcf from $16.42.
Upstream
- Upstream second-quarter earnings were $4.6 billion, a decrease of $1.9 billion from the first quarter.
- The main factors were lower natural gas prices, which declined 40%, and seasonally higher scheduled maintenance.
- Identified items unfavorably impacted earnings by $12 million this quarter, down from $158 million in the previous quarter.
- Earnings excluding identified items decreased from $6.6 billion in the first quarter to $4.6 billion in the second quarter.
Energy Products
- Energy Products second-quarter earnings totaled $2.3 billion, down $1.9 billion from the first quarter.
- Industry margins declined sequentially from a strong first quarter on weaker diesel margins as Russian supply concerns eased.
- Lower margins were partially offset by higher volumes from the first full quarter of the Beaumont refinery expansion, lower scheduled maintenance, and continued strong reliability.
Refining Capacity
Exxon successfully completed the ramp-up of the Beaumont Refinery expansion, demonstrating 250,000 barrels per day of crude distillation capacity and expanding its integration advantage by capitalizing on the growth of lighter crude oil from the Upstream’s Permian assets.
Refining throughput for 2022 was 4 million barrels per day, up 171,000 barrels from 2021 on a current
refinery circuit basis, reflecting best-ever annual refining throughput in North America and the highest globally since 2012.
Chemical Products
- Chemical Products second-quarter earnings were $828 million, up from $371 million in the first quarter, mainly on improved margins from lower feed costs.
- Earnings also benefited from lower planned maintenance expense and increased sales volumes.
- The Baytown chemical expansion project, which will add 750 kta of performance chemicals production, achieved mechanical completion in the second quarter, with a phased start-up expected in the third quarter this year.
Specialty Products
- Specialty Products earnings were $671 million, down $103 million from the first quarter.
- Lower basestock margins and higher scheduled maintenance expense were partly offset by favorable tax items.
- During the second quarter, ExxonMobil announced it is planning to build a lubricants manufacturing plant in Raigad, India. The new plant is expected to produce 159,000 kiloliters of finished lubricants per year to help meet demand growth in India, with start-up expected by year-end 2025.
Financial
- ExxonMobil generated cash flow from operations totaled $9.4 billion and free cash flow was $5.0 billion, which includes a net working capital impact of $3.6 billion primarily driven by higher seasonal cash tax payments.
- Cash flow from operations excluding working capital was $13.0 billion.
- The company’s debt-to-capital ratio remained at 17% and net-debt- to-capital ratio was 5%, reflecting a period-end cash balance of $29.6 billion.
Stock Repurchases and Dividends
- Second-quarter shareholder distributions of $8.0 billion included $4.3 billion of share repurchases and $3.7 billion of dividends.
- The Corporation declared a third-quarter dividend of $0.91 per share, payable on Sept. 11, 2023, to shareholders of record of Common Stock at the close of business on Aug. 16, 2023.
Capex
The company’s capital and exploration spending was $6.2 billion in the second quarter and $12.5 billion for the first half of 2023, in line with the company’s full-year guidance of $23 billion to $25 billion, the company 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.”
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