With An Increase In Volume Exxon’s Earnings Should Improve

by Trefis Team
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Exxon Mobil (XOM): Exxon Mobil’s capital expenditure outlays over the past couple of years have started to come to fruition, resulting in increased volumes, and therefore it is likely Exxon’s earnings in the coming quarters may see an upswing. This may be a catalyst for the stock to see a rise in the coming quarters.

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 – Exxon In The Coming Quarters– and modify the key drivers to see the impact on the company’s valuation.

For the past couple of years Exxon has been laying down infrastructure to increase its upstream volumes with capacity growing by 40% in Asia Pacific and North America. 13 new facilities were added by Exxon, of which 7 are operational, with more facilities expected to become operational in the coming quarters.

Exxon has been betting on the Permian Basin in hopes of stemming declines in volume, that it has faced recently. This has largely been a result of falling production in its upstream segment. With declines in older oil fields being larger than the new production being brought online, Exxon has has to contend with pressure on its margins and bottom line. Production fell to 3.8 million BOE/d in the third quarter, as a result Exxon has been aggressive in the development and bringing production online from the Permian Basin. According to Exxon, the Permian Basin assets hold reserves of anywhere from 9-9.5 billion BOE. Exxon expects that recovery rates in these fields to be higher than previously estimated. With the largest source being the Delaware Basin, where the expected recovery price for the company would be $45, with realization of oil being at a rate of 90% vs 65% for the rest of the assets in the basin.

With increased production, the company expects, over the next 4-8 quarters, to bring on additional capacity mainly from its gulf coast facilities. Increased volumes and refining capacity should bring Exxon back to rising net profits; with WTI making up the majority of the additional volume.

Exxon will continue to face headwinds, due to the recent decline in the price of oil, and subsequently this may affect margins. But improved earnings should be positive for the stock. Overall the company is in a better position than it was a couple of years ago, and we expect Exxon to weather the recent declines in the price of oil better than in previous times that oil prices declined.

 

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