Exxon Mobil (NYSE:XOM) released its estimated Q1 2012 results, announcing a 11% decline in its quarterly earnings over the same period last year.  The fall in earnings was largely because of a fall in its production levels. Production levels fell by 5% over the same period last year, largely because of OPEC quota limits and the impact of higher oil prices on production sharing volumes. Natural declines in fields accounted for less than 1% of the fall as new production from Angola and Iraq offset decline from older fields. More importantly, the company announced that it would cut the number of rigs drilling for unconventional gas in the U.S.  Exxon had earlier refused to follow competitors like ConocoPhillips (NYSE:COP) in announcing reductions in shale exploration plans as gas prices fell below $2 / Million British thermal units (MMBtu).
We are revising our current model for Exxon Mobil, which predicts a $94.12 price estimate for the stock. This is at a 10% premium to its stock price.
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Low production levels dampened the company’s Q1 earnings. Over the past few quarters, high oil prices have helped Exxon deliver growing earnings despite falling volumes. However, falling production levels and a sharp drop in North American gas prices have finally caught up with the company’s runaway upstream performance since oil prices jumped in 2011 on the back of political uncertainty in the Middle East and improving macroeconomic conditions. The company is continuing its record capital spending on developing new resources to offset natural decline in fields.
Exxon also said that it was cutting down the number of rigs drilling unconventional gas fields in the U.S. from 72 last year to around 61 in 2012. Officials have said that the company is moving to cut incremental exposure to dry gas wells despite the company maintaining that it was taking a long term view for shale development in the U.S.
Downstream earnings saw an increase over Q1 2011. Earnings from this segment saw a rise because of higher volumes but were tempered by a fall in refining margins. Overall downstream earnings increased by $487 million to $1.586 billion. Earnings were boosted by an asset sale that contributed $320 million to this quarter’s earnings. Chemicals earnings fell by more than half from $1.516 billion in Q1 2011 to $701 million in the last quarter.
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