Why the Crude Oil & NGL Segment Accounts For 45% Of Exxon Mobil’s Value

-0.10%
Downside
115
Market
115
Trefis
XOM: Exxon Mobil logo
XOM
Exxon Mobil

Exxon Mobil’s (NYSE:XOM) Crude Oil & NGL segment contributed a little over 10% to the company’s overall revenues in 2017, but we estimate that the segment accounts for around 45% of the company’s overall value. This can be attributed to a higher contribution of the Crude Oil & NGL segment to the company’s overall EBITDA. We have created an interactive dashboard, which compares the Crude Oil & NGL to other segments of the company. You can adjust the revenue and EBITDA drivers to see the impact on the company’s overall revenues and EBITDA. Below we discuss our expectations and forecasts for the company.

Expect Crude Oil, NGL, And Other Upstream Business To Drive EBITDA Growth In 2018 And Beyond

We estimate the Crude Oil & NGL EBITDA to grow roughly 16% in 2018, and slightly lower in 2019. This growth will be led by a ramp up in revenues, as well as the margins. In November 2016, the OPEC members entered into an agreement to restrict their cumulative oil production by 1.2 million boed in 2018. So far, they have stood by their commitment, despite an increase in the U.S. oil exports to Asia. Accordingly, we estimate the annual average crude oil prices for Exxon could average at around $54 per barrel this year, and rise back to around $80 per barrel by 2024. It should be noted that a $54 price realization for Exxon reflects a 10% jump in pricing as compared to the prior year. A pricing boost will aid the segment revenue growth, and also provide room for margin expansion. Furthermore, production costs, which include production taxes, transportation costs, and production-related general and administrative expenses, have been on a decline for the past few years. While a portion of these costs is likely to increase when the commodity prices rebound, it will be notably lower compared to the previous levels. Accordingly, we estimate a 200 basis point increase in EBITDA margin for Exxon’s Crude Oil & NGL division. Note that the segment revenues also include income from equity affiliates, for which the margins are 100%, primarily due to the fact that income from equity affiliates is counted entirely as profits on the company’s books. 

Relevant Articles
  1. Down 9% Since The Beginning of 2023, What Should You Expect From Exxon Mobil Stock?
  2. Will Exxon Mobil Stock Trade Higher Post Q2?
  3. What’s Happening With Exxon Mobil Stock?
  4. Exxon Mobil Stock Likely To Trade Lower Post Q4
  5. What To Expect From Exxon Mobil’s Stock Post Q2?
  6. Can Amazon Stock Add Two Exxon Mobils To Its Market Capitalization?

Expect Modest Revenue & EBITDA Growth In Other Segments

 

While Crude Oil & NGL will likely grow in double digits, the other segments are expected to see only modest growth. The company’s downstream operations accounts for more than 65% of the company’s revenues. However, the EBITDA margins for this segment are in the low single digits, as is the case with other players in the industry. Accordingly, the contribution of downstream operations to overall EBITDA is less than 20%. We don’t expect any significant changes to the revenue or EBITDA margin forecast for the company’s downstream, as well as chemicals business. This can partly be attributed to Exxon’s focus on reducing its exposure to stagnant markets. The company has sold assets in Indonesia and Japan and is said to be in talks to sell downstream assets in other not-so-profitable, stagnant markets. With such initiatives, we don’t expect much growth in revenues. While this should aid the EBITDA margins in the long run, we don’t expect much change in margins in the near term. Overall, the company’s Crude Oil & NGL is the most valuable segment for the company, per our estimates, despite a lower contribution to revenues. We don’t expect this to change in the foreseeable future.

Don’t Agree With Our Forecast? Feel Free To Create Your Own By Making Changes To Our Model

 

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Like our charts? Explore example interactive dashboards and create your own.