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Exxon Mobil (XOMFree Exxon Mobile Stock Report), the world's largest oil producer and a Dow-30 staple, turned in a solid earnings performance for the fourth quarter of 2012. The energy giant posted share profits of $2.20 in the term, besting both the $1.97 recorded in the year-earlier period and our estimate of $2.00. Exxon Mobil stock was little changed on the news, however.

But for the year as a whole, Exxon Mobil "only'' earned $37.4 billion, or $8.10 a share (excluding sizable second-quarter divestment gains and tax-related items), versus the $8.42 logged in 2011. Still, earnings on the magnitude of $37.4 billion have to be considered an accomplishment for any company, although Exxon's annual profits have topped $40 billion on a few occasions.

Exxon Mobil continued to return a large percentage of cash to shareholders, as well. In 2012, the company distributed over $30 billion to its owners through dividends and share repurchases. Note: We look for a dividend hike in the second quarter, as has come to be the practice in recent years.

Breaking down the profit mix, the refining and chemicals segments made up a greater percentage of the total in the fourth quarter, more than making up for a drop in earnings from oil production. Both the refining and chemicals line benefited from improved industry margins, offsetting somewhat lower average oil prices. On a full-year basis, the story was similar in that there was greater relative strength in refining than in oil production, although profits from chemicals manufacturing were down moderately.

Overall, it was a decent report for the company, and one that showed the continuation of the trend toward heavy investment in energy projects. Spending on capital and exploration projects rose to nearly $40 billion in 2012. A big part of the reason for the need to spend more is that it is harder to find fields that produce as much oil as in the past, and the fields that are discovered are often in difficult-to-work regions. Even so, XOM's imposing balance-sheet strength means the increase in capital expenditures in recent years is entirely manageable.

The one area of concern for investors is the slow decline in oil production that higher spending has been unable to arrest. Mirroring the industry as a whole, Exxon has necessarily had to focus more on natural gas production, given limited access to oil fields in the Middle East and Russia. But the ramp up of gas production in North America has been slowed by the region's low pricing environment. On the plus side, the company's aggressive stock-repurchase program provides an offset to falling production on a per-share basis. While total production fell 6% in 2012, the company bought back 5% of its shares, largely evening up the score.

Looking ahead, it is shaping up as a year of comparatively flat earnings for Exxon Mobil in 2013. Although it doesn't stand out for price performance, this high-quality stock offers worthwhile risk-adjusted total returns over the long term.

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.