Exxon Mobil’s 2Q’17 Earnings To Improve; Continues To Expand Its Operations To Enhance Long Term Value

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Exxon Mobil (NYSE:XOM), the world’s largest publicly traded oil company, is set to post its June quarter 2017 financial results on 28th July 2017((Exxon Mobil To Announce June Quarter Results, www.exxonmobil.com)). As the rally in commodity prices subsided in the second quarter due to rising US oil production and inventories, the market expects the integrated company’s upstream price realizations to come in lower than the previous quarter, leading to a drop in its top-line on a sequential basis. That said, the company continues to invest in partnerships and projects that are expected to allow the company to deal with the ongoing commodity trough, while boosting its value in the long term.

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Key Trends Witnessed in 2Q’17

  • The surge in commodity prices, particularly crude oil, due to the implementation of OPEC production cuts came to a halt as the US oil production and inventory levels rose sharply in the second quarter. As a result, the WTI crude oil prices dropped from an average of $52 per barrel in the first quarter of 2017 to $48 per barrel in the latest quarter. Consequently, we expect Exxon’s upstream price realization for the quarter to be lower than that of the previous quarter, impacting its June quarter revenues.
  • The company has been in the news lately for suing the US government for imposing a fine of $2 billion for disregarding the US sanctions imposed on Russia in 2014, by setting up an oil joint venture with Rosneft, Russia’s largest oil producer. However, Exxon has filed a suit against the retroactive enforcement of a new interpretation of an executive order, even though the fine would not have a severe impact on the company or its cash flows.

Source: Google Finance; US Energy Information Administration (EIA)

  • During the quarter, the integrated energy company made a final investment decision (FID) to proceed with the first phase of development for the Liza field. The discovery, located offshore Guyana, is considered to be one of the largest oil discoveries of the past decade, holding gross recoverable resources of 2-2.5 billion of oil equivalent. The company had previously announced positive results from the Liza-4 well, which has encouraged it to move ahead with the next phase of field development.
  • Exxon Mobil signed a production sharing contract (PSC) with the Government of Equatorial Guinea to acquire and develop a deepwater block EG-11, located 36 miles west of Malabo. The company will hold 80% working interest in the block which measures about 307,000 acres. The oil and gas producer has been operating in Equatorial Guinea for over 20 years and has produced more than 1 billion barrels in the Zafiro field, which are adjacent to block EG-11. The company aims to expand its deepwater acreage and production in the region with this deal.

  • In order to augment its downstream operations, the US-based oil and gas company plans to open its first Mobil service station in central Mexico during the second half of 2017, and additional stations thereafter. The company aims to invest about $300 million in fuels logistics, product inventories, and marketing over the next 10 years to provide a reliable supply of quality products to the retail, wholesale, industrial, and commercial sectors.
  • Exxon Mobil declared a quarterly cash dividend to $0.77 per share in the second quarter, which is 2.7% higher than the previous quarter. This indicates the company’s willingness to share its growing cash flows and profits with its stockholders.

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