06 Feb Investors Penalize Exxon Mobil For Missing Consensus Estimate
Exxon Mobil ( XOM ), the world’s largest publicly traded oil and gas company, posted a strong improvement in its financial performance for the December quarter and full year 2017 on 2nd February 2018(( Exxon Mobil Announced December Quarter Results , www.exxonmobil.com)). While the company’s top-line and earnings recovered, backed by the rebound in commodity prices, the company missed the analyst estimate for both revenue and earnings, which caused investors to penalize the stock. As a result, the company’s stock dropped more than 5% on Friday (in a very weak overall market), post the announcement of the results.
Going forward, Exxon will continue to grow its output in the Permian Basin, while exploring offshore discoveries in Guyana and Brazil, and LNG opportunities in Mozambique and other regions. These transactions are likely to drive a large portion of its value in the long term. We currently have a price estimate of $84 per share for Exxon Mobil, which is in line with its market price. We will be updating our model shortly to reflect Exxon’s 2017 results and guidance for 2018 and beyond.
Key Highlights of 4Q’17 Earnings Release
- Due to the production cuts by the Organization of Petroleum Exporting Countries (OPEC), the commodity prices rose sharply through the year. Consequently, Exxon witnessed a notably rise in its price realization during the year, which was offset by lower production due to field declines and lower entitlements. Overall, the company’s upstream earnings grew $5.3 billion compared to the previous year.
- Exxon’s downstream operations benefited from strong refining and marketing margins through the year, partially offset by lower volumes. The company’s downstream earnings rose to around $5 billion, more than 17% higher than 2016.
- The company’s chemical results suffered due to weaker margins, despite favorable effects of volume and mix during the year. The division’s earnings (adjusted) fell from $4.6 billion in 2016 to $4.2 billion in 2017.
- During the year, Exxon generated cash flows of $33.2 billion from its operations and asset sales. This was used to meet the company’s capital investment of $23.1 billion and dividend payment of $13 billion.
- Exxon Mobil will continue to invest in the Permian Basin in West Texas and New Mexico. The company will expand and enhance its existing operations and infrastructure, while building new manufacturing sites to augment its plans to expand its oil production from the region. With Exxon’s strong execution skills, we expect the Permian growth to create value for the company as well as its shareholders in the coming years.
- During the year, the company enjoyed a net favorable non-cash impact of $5.9 billion, relating to the implementation of the Tax Cuts and Jobs Act in the US. Going forward, the oil and gas major plans to invest more than $50 billion in the US over the next five years to increase its production and enhance its integrated portfolio, which will allow it to benefit from the latest tax reforms.
- On the operational front, Exxon has announced its sixth oil discovery offshore Guyana, bringing the total estimated recoverable reserve from the discovery to higher than 3.2 billion barrels of oil equivalent. Further, the company acquired 14 offshore blocks in Brazil comprising of more than 1.25 million net acres in the pre-salt Carcara oil field, which is estimated to hold recoverable resources of 2 billion barrels of high-quality oil. Also, the company announced the completion of its LNG acquisition in Mozambique deepwater Area 4 block, which is estimated to hold 85 trillion cubic feet of natural gas in place. These transactions are expected to contribute a significant portion of Exxon’s valuation in the coming years.
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