Exxon Mobil Pumps Up Dividend Heading Into Earnings Thursday

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Oil major Exxon Mobil (NYSE:XOM) will releasing its Q1 results Thursday morning. So far 2012 has been a mixed year for energy companies as high crude oil prices offset the impact of falling gas prices in North America. While rivals such as ConocoPhillips (NYSE:COP) have announced production cuts to temper falling gas prices, Exxon has said that it will continue with its long term plans in the shale gas exploration industry despite low pricing. Downstream earnings from refining & marketing and chemicals should show an increase, based on available results and Chevron (NYSE:CVX) interim results that were released a few weeks ago.

We are looking to revise our $94.12 price estimate for Exxon Mobil, which is at a 10% premium to its current market price. On Wednesday afternoon the company also announced a cash dividend of 57 cents which is 21% higher than last quarter.

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Mixed upstream results

Last quarter was marked by high oil prices internationally, because of stricter sanctions against Iran. On the other hand, natural gas prices in North America fell below $2 / Million British thermal units (MMBtu) because of a mild winter and overproduction from shale explorers. As gas prices dipped to touch their lowest point in a decade, Exxon maintained that it would not implement any production cut backs.

The company became the largest gas producer in North America after the acquisition of XTO energy 2 years ago. Despite being a late entrant in the shale gas industry, Exxon Mobil has shown a keen willingness to become a leader in the unconventionals segment in the U.S.

We do not expect the company’s overall production levels to show any major change in the last quarter. Output levels may show a small decline as in the case of its competitor Chevron, but should not have a major impact on overall earnings.

Downstream

Downstream margins for Exxon should show a slight improvement as refining margins rebounded in Q1 2012 after showing in a sharp fall in Q4 2011. Earnings from pipeline and transportation should also continue to remain strong in the period. We also expect the company to show a strong growth in earnings from its chemicals division because of low gas prices. Natural gas is an important raw material for chemicals production.

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