Exxon Mobil Set For A Good Quarter Backed By Higher Price Realizations
Exxon Mobil (NYSE:XOM), the world’s largest publicly traded oil and gas company, is set to report its December quarter and full year 2017 financial results on 2nd February 2018((Exxon Mobil To Announce December Quarter Results, www.exxonmobil.com)), along with its competitor, Chevron (NYSE:CVX). The market expects the company to report a solid improvement in its revenue as well as earnings, backed by the rebound in commodity prices as well as downstream margins. Further, the company recently announced its plans to merge its downstream operations into one consolidated unit starting from 2018. While this will not have an impact on the 4Q’17 results, we will closely watch the earnings call for any updates on the same. We currently have a price estimate of $84 per share for Exxon Mobil, which is slightly lower than its market price.
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Key Trends Witnessed In 4Q’17
- The extension of the Organization of Petroleum Exporting Countries’ (OPEC) production cuts in the fourth quarter led to a sharp rise in commodity prices during the quarter. The WTI crude oil prices averaged at $55.26 per barrel for the December quarter, notably higher than the $48.18 per barrel of the previous quarter. For the full year 2017, WTI oil prices stood at $50.80 per barrel, 17% higher than 2016. Thus, we expect this higher price realization to boost Exxon’s upstream revenue for the quarter as well as the full year 2017.
- During the December quarter, Exxon decided to restructure its downstream operations by integrating its refining and supply division with its fuel and lubricants business in the first quarter of 2018. The purpose of this restructuring is to boost the company’s downstream profits by streamlining the operations and improving decision making. By doing this, the company will not only be able to improve its profitability, but will also be in a position to mitigate the risk of a slower recovery in the commodity prices in the next few quarters.
- On the operational front, Exxon announced that its Hebron project in Canada started production safely and ahead of schedule. At peak capacity, the project is expected to produce up to 150,000 barrels of oil per day and has a storage capacity of 1.2 million barrels of oil.
- Further, the integrated company entered into a production sharing contract with the Government of Mauritania for the development of three deepwater offshore blocks. The company is the working operator with 90% interest in the project.
- Exxon also announced the completion of its LNG acquisition in Mozambique deepwater Area 4 block, which is estimated to hold 85 trillion cubic feet of natural gas in place. The company will now hold a 35.7% interest in Eni East Africa S.p.A, which owns a 70% interest in Area 4.
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