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Shares of oil giant Exxon Mobil (XOMFree Exxon Mobil Stock Report) got a lift when the company reported better-than-expected third-quarter earnings of $1.46 a share. That was nicely higher than our estimates of $1.25 a share and a big jump from the $0.93 per share recorded in the previous year. Revenues also came in ahead of expectations. The industry as a whole has been turning in a very solid performance of late, thanks to higher oil prices during the June to September period. Crude oil quotations have come off of their recent highs, though, due to supply and demand concerns.

During the quarter, the company earned an impressive $6.2 billion, and generated $11.1 billion in cash flow. As usual, most of the profits ($4.2 billion) were generated by the oil and natural gas pumping division. Volume trends in that line were favorable stateside, but not on the whole, given a 2% overall decline in production. Exxon is clearly focused on building up its domestic oil production business, and that is leading to good results. The company has had to retrace its steps in recent years through a series of acquisitions to add pumping capacity in the United States. For several decades, the major oil companies concentrated on overseas operations, given the perceived lack of opportunities closer to home. That dynamic has changed with the rise of shale drilling. Exxon has been playing catch-up to get a hold of good drilling properties in North America, but recent indications offer promise.

Meanwhile, the international drilling business still accounts for a larger percentage of profits, even if volume trends are not as uplifting. The problem overseas has long been gaining access to productive fields. As oil prices rise, too, ventures operated in conjunction with OPEC members tend to produce less, as OPEC countries seek to maintain a steady level of revenues and lengthen the lives of their oilfields, considered national assets. On the whole, though, Exxon's profits remain more leveraged to international drilling, which is benefiting from higher oil prices.

Downstream results were mixed, with wider refining margins boosting U.S. refining profits, but narrower margins hurting non-U.S. refining. In chemicals, domestic profits were flat for the quarter, but dipped overseas on lower margins, higher expenses, and unfavorable currency translation.

Overall, this was a good quarter for Exxon Mobil, greatly assisted by the upturn in oil prices. The favorable results show what the company can do when market conditions are favorable. We are raising our 2018 earnings-per-share estimate by $0.25, to $4.80, at this time, and figure the company can improve on that figure modestly in 2019. Exxon's top-quality shares offer a high yield and solid risk-adjusted returns out to 2021-2023.

About The CompanyExxon Mobil Corp. is the largest publicly traded oil company in the world. It also owns 69.6% of Imperial Oil (Canada). Daily production in 2017 was as follows: crude oil, 2.3 million barrels (-4% vs. ’16); natural gas, 10.2 billion cubic feet (+1% vs. ’16). Reserves as of 12/31/17 were 21.2 billion barrels of oil equivalent (57% oil and 43% gas). Reserve life at the current production rate is 14 years. The daily refinery runs in 2017 were as follows: 4.3 million barrels (flat vs. ’16); product sales, 5.5 million barrels (flat vs. ’16); chemical sales, 25.4 million tonnes (+2% vs. ’16).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.