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Oil giant Exxon Mobil (XOM – Free Exxon Mobil Stock Report) has notched strong June-quarter earnings of $2.18 a share. The figure easily surpassed our estimate of $2.00 and the year-earlier tally of $1.60. Higher crude oil and natural gas prices were the main profit drivers. The refining segment also contributed to the gain, thanks to higher petroleum product sales.

The oil and gas producing division continues to be the star of the show. Natural gas volume rose 22% in the recent interim, compared to the prior year, as the company developed unconventional assets stateside and projects ramped up in Qatar. Meantime, oil liftings edged up 1% on higher increased output from Iraq and Qatar. Combined oil and natural gas production rose 10%, a very healthy number in the drilling business.

Downstream, or refining and marketing, results had more of a mixed tone than in the recent past. That's as earnings in the United States rose, but profits from operations in the rest of the world fell 20%. Earnings from the chemicals unit also dipped slightly on lower unit volume and higher taxes.

During the second quarter, Exxon Mobil purchased 67 million shares of its common stock for $5.5 billion. Buybacks continue to be one of the company's strengths. Indeed, for the first half of 2011, share repurchases totaled $11.2 billion, reducing shares outstanding by 136 million, or 2.7%. The oil juggernaut has indicated that it intends to buy back another $5 billion in stock in the current quarter. Significant share repurchases are likely to continue, and the consistent manner in which Exxon engages in this practice provides a level of assurance.

Exxon also invested a record $10.3 billion on capital projects and for oil and gas exploration during the quarter. That push led to two major oil discoveries and a gas discovery in the deepwater Gulf of Mexico. The company also nearly doubled its drilling acreage in the highly productive Marcellus shale region.

The good performance overall apparently wasn't enough to satisfy Wall Street, though, where earnings expectations had been rising in recent weeks. Indeed, the stock fell slightly on the news. Nonetheless, we think that this issue is a good holding for conservative investors looking to benefit from favorable long-term trends in the oil patch.


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.