The Big Daddy in the integrated oil space — ExxonMobil Corporation (XOM) — misses in the first quarter. The company reported first quarter earnings of $1.33 per share, missing the Zacks Consensus Estimate of $1.39 but over the year-earlier earnings of 92 cents.
Though earnings missed estimates, figures were significantly sharper than the year-earlier numbers, largely driven by higher production volumes, a significant increase in crude oil realizations and improved chemical margins. These were partly offset by poor downstream margins.
BP plc (BP), another oil major, recently posted significantly better-than-expected first quarter results on the back of solid price realizations and lower production costs. The results of both Exxon and BP have set the stage for Chevron Corporation (CVX), which is scheduled to report its first quarter results tomorrow.
Dividend
Since 2007, it has been a regular practice of Exxon’s to raise its dividend in the second quarter, and this year was no exception. The company raised its quarterly dividend yesterday to 44 cents per share (annualized $1.76) — from 42 cents earlier — representing a current dividend yield of 2.54%. It has also repurchased $2 billion worth of its own common stock in the reported quarter.
With the uptrend in oil prices and improvement in macro environment, oil majors are back on track. Apart from Exxon, Chevron has also raised its dividend recently by 5.9%.
Operational Performance
The improved production and increased oil price realizations caused a 38% hike in earnings from the year-earlier quarter to $6.3 billion. Upstream earnings were up nearly 66% year over year to $5.8 billion.
The production of oil and natural gas averaged 4.36 million oil-equivalent barrels per day, up approximately 4.5% year over year. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production was up about 6%. Exxon’s refinery throughput averaged 5.16 million barrels per day, down more than 4% from the year-earlier level.
Total refined product sales of 6.14 million barrels per day were down 4.5% year over year, reflecting the depressed demand environment. Total product sales in the Chemicals business segment increased 17.4% year over year.
Cash flow from operations and asset sales totaled $13.5 billion in the reported quarter. Capital expenditures totaled $6.9 billion during the quarter, up 19% year over year.
Outlook
Given Exxon’s significant share (more than three fourths of first quarter earnings) in the upstream business, we believe that it will retain its leverage to higher oil prices going forward. Exxon’s return on capital employed (ROCE) has significantly exceeded its peers in recent years.
However, upon completion of the XTO merger, expectedly at the end of the second quarter, Exxon’s percentage of overall production coming from U.S. natural gas will increase. This is one of our main concerns. Our Neutral recommendation remains unchanged at this stage.
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