Exxon Mobil (NYSE:XOM) has scheduled its Q3 2011 earnings release for Thursday morning. The results are expected to be largely on the lines of its performance in the previous quarter as indicated by sister oil major Chevron (NYSE:CVX) in its interim update. ^[1] Exxon’s growing interest in unconventional resources within and outside the U.S. was the highlight of its operations in this quarter. The behemoth has steadily been shifting its production mix towards higher gas output. Results from Q3 are also expected to get a boost because of favorable non-cash currency effects as the U.S. dollar strengthened against other major currencies.

We have a $93 price estimate for Exxon Mobil which is at a 20% premium over its current market price.

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Price drops may hurt upstream results

A fall in oil prices on concerns of a global slowdown and fears of Chinese demand cooling down over the next few quarters have resulted in a decline in oil prices. The price of crude has fallen from its peak in May earlier this year as industry watchdogs have cut down GDP growth estimates and production in the country of Libya seems to coming back on track. China’s crude oil imports dropped by 12% in September Y-o-Y as demand in the world’s second largest consumer of oil started showing signs of weakness. ^[2] Exxon’s upstream businesses contributed to a majority of its value accourding to our estimates.

The fall in oil prices in Q3 may result in the upstream earnings of the company being slightly lower compared to those posted in previous quarters when its upstream earnings stood at $21.35 /barrel. ^[3] Stronger pricing of LNG on the back of Asian demand may temper the fall in revenues. Overall, gas output may rise because of the company’s thrust in the unconventionals space. Exxon has expanded its operations in shale exploration in Poland and is also on the verge of starting similar operations in neighbouring Ukraine. (See: Exxon Expands Fracking Operations in Europe) Shale exploration in Argentina is also set to being in the last quarter of this year.

Other divisions may report stable earnings

No major sequential changes are expected in Exxon’s downstream and chemicals businesses results. The company offloaded some of its downstream assets in Malaysia earlier this quarter which may result in a one time earnings gain. Exxon looks at its downstream and chemicals business as a source of competitive advantages. We believe that the refined products and chemicals businesses contribute to about 15% of our price estimate of the stock.

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1. Chevron Issues Interim Update for Third Quarter 2011, Chevron [↩]
2. Oil falls on China demand fears, Fin 24 [↩]
3. Second Quarter 2011, Exxon Mobil [↩]