Oil giant ExxonMobil reported better than expected fourth quarter earnings Tuesday as oil and natural gas prices hit long term highs. Cash flow generation saw XOM pay down debt by an additional $9 billion, bringing the full-year reduction to $20 billion. Last week Chevron missed on production and gave a tempered near-term outlook. $XOM shares hit a new 52 week high after the release.
ExxonMobil Inc. (NYSE: $XOM) Reported Earnings Before Open Tuesday
$2.05 Beat $1.93 EPS and $85.00B Missed $91.85 billion revenue forecast
Conference call: 9:30 a.m.
Exxon Q4 2021 Earnings
- Adjusted EPS $2.05 per share, or $8.87 billion, up from just 3 cents per share over the same period last year beat Street consensus forecast of $1.93 per share.
- Group revenues, Exxon rose 82.6% to just under $85 billion but missed analysts’ estimates of $91.85 billion.
- Reduces structural costs by an additional $1.9 billion, increasing total savings to nearly $5 billion versus 2019
- Strengthens balance sheet to pre-pandemic levels by paying down $20 billion in debt
- Expects to achieve 2025 emission-reduction plans four years ahead of schedule
- Aims to achieve net zero Scope 1 and 2 greenhouse gas emissions for operated assets by 2050, with plans to achieve net zero in the Permian Basin by 2030
- Beginning in the first quarter of 2022, the company-initiated share repurchases associated with the previously announced buyback program of up to $10 billion over the next 12 to 24 months
Oil and gas prices have soared since the global economic lockdowns and widespread travel restrictions reversed. What the hardships did was lead XOM to sell off non-core assets such as its North Sea operations. This continues to put XOM in a much sturdier position and one able to benefit from the surge oil and gas prices leading to a dramatic turnaround to the point where it can increase its dividend and begin share repurchases.
Low Carbon Solutions
On Monday Exxon announced that it would turn its low-carbon solutions business into its own division, restructure its refining and chemicals business and move its official headquarters. The move elevates the company’s climate initiatives. It will also likely see a substantial cost reduction. Exxon is also moving its headquarters to Houston from Irving, near Dallas. A large portion of the company’s employees are already in Houston, but top executives are currently in Irving.
Exxon’s decision to elevate Low-Carbon Solutions and it expects to spend $15 billion through 2027, to its own reportable division could be a sign it’s more serious about spending money to battle climate change. Now it also means investors could start judging the company on those results in a similar way that it looks at its production and refining results.
Capex
Exxon said it sees capital spending in the region of $21 billion to $24 billion, well ahead of forecasts,
“Our effective pandemic response, focused investments during the down-cycle, and structural cost savings positioned us to realize the full benefits of the market recovery in 2021,” said CEO Darren Woods. “Our new streamlined business structure is another example of the actions we are taking to further strengthen our competitive advantages and grow shareholder value.’
“We’ve made great progress in 2021 and our forward plans position us to lead in cash flow and earnings growth, operating performance, and the energy transition,” Woods added.
Upstream
• Average realizations for crude oil increased 8% from the third quarter. Natural gas realizations increased
63% from the prior quarter.
• Oil-equivalent production in the fourth quarter was 3.8 million barrels per day. Excluding entitlement effects,
divestments, and government mandates, oil-equivalent production increased 2% versus the prior-year
quarter, and was also up 2% versus the prior year, driven by demand recovery.
• In 2021, production volumes in the Permian increased nearly 100,000 oil-equivalent barrels per day, with
improved capital efficiency. The focus remains on continuing to grow free cash flow by increasing recovery
through efficiency gains and technology applications.
• ExxonMobil continued to progress its low cost of supply deepwater developments in Guyana, with estimated
recoverable resources increasing to approximately 10 billion oil-equivalent barrels, supported by six
commercial discoveries in 2021. The Liza Unity floating production, storage, and offloading vessel arrived in
Guyanese waters in October 2021.
• The sale of certain United Kingdom North Sea assets to Neo Energy was completed in December 2021.
Downstream
• Global refining margins improved from the third quarter with increased transportation demand driven by
easing mobility restrictions, partly offset by higher energy prices in Europe. Fourth-quarter margins improved
to the low end of the 10-year range, although jet demand remains challenged.
• Refining throughput in the quarter was the highest since 2013, up 2% from the third quarter, allowing the
company to capture the benefit of improved industry margins.
• Lubricants earnings were a full-year record, as strong reliability performance enabled full capture of robust
basestocks margins.
• The company acquired a 49.9% stake in BioJet AS, a Norwegian biofuels company that plans to convert
forestry and wood-based construction waste into lower-emissions advanced biofuels, providing ExxonMobil
the opportunity to purchase as much as 3 million barrels of lower-emission biofuel products per year.
Chemical
Fourth-quarter industry margins declined from historically high levels to the middle of the 10-year range due
to increased industry supply and higher feed and energy costs.
• Annual earnings of $7.8 billion were a full-year record, reflecting robust industry demand, strong reliability,
structural cost reductions, and the company’s global supply and logistics advantages.
• High-value, performance products grew 7% and the organization advanced key projects supporting future
growth. The Corpus Christi Chemical Complex started up ahead of schedule and under budget, and a final
investment decision was reached to proceed with a chemical complex in the Dayawan Petrochemical
Industrial Park in Huizhou, Guangdong Province in China.
• ExxonMobil announced the acquisition of Materia, Inc., a technology company that pioneered the
development of a Nobel prize-winning technology for manufacturing high-performance structural polymers.
The innovative materials can be used in a number of applications, including wind turbine blades, electric
vehicle parts, sustainable construction, and anticorrosive coatings.
• The company made its first commercial sale of certified circular polymer from recycled plastic, manufactured
in Baytown, Texas, using proprietary advanced recycling technology. The advanced recycling operation in
Baytown will be among the largest in North America with initial planned capacity to recycle 30,000 metric
tons of plastic waste per year.3
• ExxonMobil completed the sale of its global Santoprene™ business to Celanese in December for a total
price of $1.15 billion
Exxon still benefited from four big drivers in chemical profits:
- “increased packaging” ( Amazon.com led e-commerce boom)
- “hygiene demand” (Covid-19 masks etc )
- “strong recovery in automotive” (after plunged in 2020)
- “durable applications” (Think more household items).
Rome wasn’t built in a day is something the ESG cultists forget, we are reminded by this disconnect from reality at the latest climate summit this weekend. The world is moving toward renewable energy sources and as the spike in prices shows, particularly in natural gas and coal it must be done with a plan. Meanwhile global oil and gas demand will remain healthy, while energy companies scale back on production activities. This leaves a favorable supply and demand dynamic foe oil and gas prices, producing solid earnings and cash flow generation for XOM barring another global lockdown.
Exxon reported price and margin improvements across all businesses with continued demand recovery; however was offset by unfavorable mark-to-market impacts on open trading strategies with higher prices as well as higher planned maintenance across all businesses.
Exxon benefited from lower corporate and financing expenses and favorable tax items
Last quarter Exxon said it cut Permian drilling and fracking costs by 40% while taking more than a third out its lease-operating expenses. Explorers are able to get the same amount of output with less rigs compared to a few years ago. Due to growing activist pressure the company said it achieved record-low flaring intensity in the Permian in the second quarter. Flaring intensity was down 30% compared with 2020. We are seeing the benefit this quarter as prices soared.
Exxon has taken moves to adjust to the new energy landscape with an extensive discussion of Exxon’s ambitions in carbon capture. The company appointed a new director with more to come. First things first, cash flow is the first priority as in all responsible commodity and energy firms in this Covid laced times. Exxon’s giant capex budget, and some would say it’s obsession to maintain it’s dividend led the company to borrow, even before Covid-19 that have caused the problem.
Exxon has worked to reassure investors and Exxon went a long way in doing that at the conference calls. Exxon Mobil’s debt though is controllable and true to form Exxon has said capex will be lowered before the dividend. This years’s budget ist he lowest since the merger with Mobil Corp. in 1999.
Outlook
ExxonMobil Huge Liza Field Acerage in Guyana
ExxonMobil earlier in the year said that oil production started from the Liza field offshore Guyana, less than five years after the first discovery of hydrocarbons, well ahead of the industry average. Gross production from the Liza phase 1 development, located in the Stabroek block, is expected to reach a capacity of 120,000 gross barrels of oil per day in the coming months. XOM made a final investment decision during 2Q17 to proceed with the Liza field development located offshore Guyana, where production is expected to start in 2020. The company expects Liza to add up to 120,000 barrels of oil per day to
Source: ExxonMobil AlphaStreet
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