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Dow-30 Earnings: Exxon Mobil – Second Quarter 2012
Oil giant Exxon Mobil (XOM – Free Exxon Mobil Stock Report) earned $1.80 a share in the second quarter of 2012, excluding a one-time gain of $1.61 a share related to asset sales and tax-related items. The per-share result was lower than both our estimate of $2.10 and the year-earlier figure of $2.18. Lower production and price realizations hurt the bottom line. However, the stock traded modestly higher, buoyed by the company’s future initiatives (discussed below).
Field performance was unexciting, with combined oil and natural gas production decreasing 5.6% from the second quarter of 2011. But if the effects of entitlement volumes, OPEC quota effects, and divestments are excluded, production would have been flat. Overall, the lackluster results point to the difficulties that the major oil companies are faced with trying to maintain their production, let alone increase it. Mature fields can easily pump 5% less every year. As a result, even as Exxon spends large sums on oil and gas project development, and its production totals are more or less running in place. At best, it appears output might inch ahead in the coming years.
It was an uneventful quarter in the downstream, as well, with the exception of the completion of a restructuring of refining and chemicals operations in Japan. The company reduced its stake in a joint venture from 50% to 22%, selling its shares to its local partner for $3.9 billion. The move may have been prompted by poor prospects for a strong recovery in Japan from the longstanding economic woes beleaguering that nation, which have reduced energy demand. Otherwise, both petroleum product sales and volume in the chemicals line eased modestly.
The company did announce several major initiatives, including an agreement to develop oil reserves in Western Siberia with Russia's Rosneft. Exxon Mobil also filed permits to build a large-scale petrochemicals plant expansion at the company's Bayton, Texas complex by 2016. Those plans were likely prompted by more abundant and less expensive natural gas available to fuel the proposed facilities. Construction of a chemicals facility in Saudi Arabia is going ahead, too, with completion expected by 2015.
On the whole, Exxon has very solid long-term prospects, and its stock might fit the bill for conservative investors looking for exposure to the energy sector. The company's financial strength was in evidence again with its purchases of 60 million shares for $5 billion in the second quarter of 2012. Another $5 billion of stock buybacks is planned for the current quarter. But we have reduced our 2012 share earnings estimate by $0.50, to $7.70.
About The Company:Exxon Mobil Corp. is the largest publicly traded oil company in the world. It also owns 69.6% of Imperial Oil (Canada). Daily production in 2011 was as follows: crude oil, 2.4 million barrels (+1% vs. ’10); natural gas, 12.1 billion cubic feet (+31% vs. ’10). The average realized 2011 prices in the U.S. were: oil, $55.54 per barrel; natural gas, $3.85 per mill. cubic feet. Reserves as of 12/31/11 were 24.8 billion barrels of oil equivalent, 47% oil, and 53% gas. The reserve life at current production rates is about 15 years. The 10-year average reserve replacement rate is 121%. The daily refinery runs in 2011 were as follows: 5.3 million barrels (-2% vs. ’10); product sales, 6.4 million barrels (flat vs. ’10); chemical sales, 25.9 million tons.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.