Exxon Mobil Set To Report Solid December Quarter Results Driven By Recovery In Commodity Prices
With the rising optimism about the oil and gas industry, the market expects Exxon Mobil (NYSE:XOM), the world’s largest integrated energy company, to release a notable rise in its December quarter earnings on 31st January 2017((Exxon Mobil To Announce Its Fourth Quarter Results, www.exxonmobil.com)). Further, the oil and gas major’s Chairman and Chief Executive Officer (CEO), Rex Tillerson has been nominated as the preferred candidate for the US Secretary of State by the US President, Donald Trump. While this means that the company would get a new CEO in the form of Darren Woods((Darren Woods Elected Chairman, CEO of Exxon Mobil, 14th December 2016, www.exxonmobil.com)), it also implies that the oil and gas industry, and in particular Exxon Mobil, will be benefited in the coming quarters, given the newly elected President’s inclination towards the sector.
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The December quarter turned out to be a comeback quarter for commodity prices, with the agreement between OPEC and some Non-OPEC members to curtail their combined oil production by 1.8 Mbpd over the next few quarters. Consequently, WTI crude oil prices rose up to $49.21 per barrel at the end of December, recovering around 10% during the quarter, while Henry Hub natural gas prices ended the quarter at $3.71 per Mcf, increasing more than 30% in the same period. As a result of this improvement in commodity prices, we expect Exxon Mobil’s price realizations for its upstream production to go up sharply, which is likely to boost its top-line for the quarter.
Data Source: US Energy Information Administration (EIA)
On the operational front, Exxon made a breakthrough natural gas discovery in the Papua New Guinea (PNG) North Highlands, where the company holds a 42.5% interest((Exxon Mobil Announces New Natural Gas Discovery Onshore Papua New Guinea, 28th December 2016, www.exxonmobil.com)). The drilling results confirmed the presence of high quality hydrocarbons in the region which are equivalent to the quality of standstone reserves in the PNG LNG project in the region. Earlier last year, the US-based energy company had acquired InterOil, an oil and gas company with a sole focus in PNG, for more than $2.5 billion and an contingent payment, in order to gain access to the company’s LNG project in the region. While the evaluation to determine the estimated size of the discovery is still underway, the market expects Exxon Mobil’s high-quality resource base to increase significantly with this discovery, strengthening its presence in the PNG region, which is emerging as a prolific play for LNG projects.
Further, the oil and gas major entered 2017 on a happy note, as the company announced the acquisition of a bunch of companies owned by the Bass family of Fort Worth, Texas((Exxon Mobil To Acquire Companies Doubling Permian Basin Resource To 6 Billion Barrels, 17th January 2017, www.exxonmobil.com)) for a sum of $5.6 billion in the form of shares and a series of additional contingent cash of roughly $1 billion, to be paid between 2020 and 2032, depending upon the development of the resource. The acquired companies will have an estimated resource base of 3.4 billion barrels of oil equivalent (boe) in New Mexico’s Delaware Basin, which is considered to be a highly prolific, oil-prone section of the Permian Basin. With the closure of the deal, Exxon’s estimated resources base in the basin will double to approximately 6 billion boe, further strengthening the company’s position in the region that is considered to be one of the largest and most economical oil plays in the US.
Data Source: Google Finance; US Energy Information Administration (EIA)
On the financial side, Exxon’s maintained a positive cash balance position for the first nine months of the year. Also, unlike some of its peers, the oil and gas producer continues to pay a quarterly dividend of 75 cents, similar to the dividend paid in the same quarter of last year((Exxon Mobil Declares First Quarter Dividend, 25th January 2017, www.exxonmobil.com)). This reiterates the willingness of the company to share its returns with its stakeholders. Thus, we look forward to solid fourth quarter results from Exxon next week.
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