Exxon Mobil’s Stock Tanks Despite Improved Upstream Results

by Trefis Team
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Exxon Mobil
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As anticipated by the market, Exxon Mobil (NYSE:XOM), the world’s largest publicly traded oil and gas company, posted a strong improvement in its June quarter revenue backed by improved price realization for its upstream operations. However, the company’s earnings dipped due to lower-than-expected upstream production, weaker chemical margins, and unfavorable foreign exchange impact, causing it to miss its earnings expectations. As a result, its stock dropped almost 3% post the announcement of its results. However, we believe that the company’s focus on the Permian Basin and new offshore discoveries in Guyana and Brazil, and LNG opportunities in Mozambique, will drive a large portion of its value in the long term.

We currently have a price estimate of $80 per share for Exxon Mobil, which is in line with its market price. View our interactive dashboard for Exxon Mobil and modify the key drivers to see the impact on the company’s valuation.

Key Highlights of 2Q’18 Results

  • Exxon’s upstream operations improved on the back of higher price realizations during the quarter. However, the positive impact of better pricing was offset by lower production due to scheduled maintenance and seasonally lower demand. That said, the company managed to grow its tight oil production in the Permian Basin and Bakken region by 25% compared to the first quarter of 2018. We expect the ramp up in these regions to drive Exxon’s upstream value going forward.
  • Exxon’s downstream operations were augmented by strong refining margins in North America and Europe, driven by seasonal demand and industry-wide maintenance. Moreover, the widening spread between WTI and Brent further strengthened the refining margins in North America. However, the chemical division experienced weaker margins as higher feed and energy costs outpaced stronger realizations. This pulled down the company’s downstream earnings.
  • Furthermore, the strengthening of the US dollar relative to the Euro and British Pound resulted in unfavorable foreign exchange impacts for the company, dragging down its earnings for the quarter. Yet, the company reported net earnings of $4 billion, or $0.92 per share, 18% higher compared to the same quarter of last year.

Going Forward

  • Exxon Mobil will continue to reduce its gas exposure and upgrade its production mix to strengthen its portfolio. Accordingly, the company expects its 2018 average volumes to be around 3.8 million oil equivalent barrels per day, excluding the impact of its divestment program.
  • Exxon’s deepwater projects in Ghana and Brazil, the unconventional liquids play in the Permian Basin, the low cost LNG opportunity in Papua New Guinea, and Mozambique have a significant upside potential for the company and are expected to contribute to its value in the long term.

Do not agree with our forecast? Create your own price forecast for Exxon Mobil by changing the base inputs (blue dots) on our interactive dashboard.

 

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