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Shades of the 2008 oil boom have resurfaced as energy giant Exxon Mobil (XOM – Free Exxon Mobil Report) has reported big profits for the March quarter. Earnings per share of $2.14 easily topped both our estimate of $1.75 and the year-earlier tally of $1.33. The improved performance was broadbased, driven by higher crude oil and natural gas prices, increased refining margins, and record performance from the chemicals division.

Increased spending is pushing up oil-equivalent production. The amount of oil and gas pumped on a combined basis rose 10% as investments in Qatar and unconventional natural gas fields continued to pay off. Notably, most of the gain from the field was from incremental natural gas volume. Oil production was mainly flat.

Downstream, results benefited from improved refining margins, slightly higher volume, and favorable foreign exchange effects. Petroleum product sales inched ahead. More important, the U.S. market turned nicely profitable after a money-losing quarter in 2010. Chemicals profits were also very impressive, moving ahead by 24% stateside and 19% internationally. The rate of profit advance has fallen off now that the industry cycle is further along, but remains in a solid uptrend.

On the corporate side, Exxon Mobil continues to methodically repurchase large amounts of stock. The company bought back 69 million shares for $5.7 billion in the first quarter. Few, if any, companies can match those types of formidable numbers. Exxon appears on track to reduce the number of shares to the level outstanding prior to its acquisition of XTO Energy, a milestone that should reached in the not-too-distant future.

A hike in the dividend is more good news for shareholders. Exxon has raised the quarterly payout by 7%, to $0.47 a share, reflecting favorable profit prospects. The surge in oil prices to above $100 a barrel has led us to increase our 2011 earnings estimate by 20%, to $8.50 a share.

Wall Street's reaction to the earnings announcement was muted, though. Investors had been expecting better results with the jump in oil quotations. There is also concern that high gasoline prices could dampen the economic recovery. Nevertheless, Exxon Mobil stock remains a quality holding for conservative, long-term investors.

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 2010 was as follows: crude oil, 2.4 million barrels (+1% vs. ’09); natural gas, 12.1 billion cubic feet (+31% vs. ’09). The average realized 2010 prices in the U.S. were: oil, $55.54 per barrel; natural gas, $3.85 per mill. cubic feet. Reserves as of 12/31/10 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 2010 were as follows: 5.3 million barrels (-2% vs. ’09); product sales, 6.4 million barrels (flat vs. ’09); 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.