ExxonMobil gets more profit from each barrel to beat its gains – The Fool Motley

The investment record of ExxonMobil (NYSE: XOM) has always been focused on the very long term. Most of the time, this can be to the detriment of short-term results. This had certainly been the case so far in 2018 because the company produced poor results. During the last quarter, however, some of the things ExxonMobil has been working on over the last few years have begun to materialize and have led to a much better-than-expected earnings result.

Let's take a look at what the company has done in the last quarter, going from generally disappointing earnings results to a pleasantly surprising quarter, and what that means for investors from now on.

In numbers

DATA SOURCE: PUBLICATION OF EXXONMOBIL RESULTS. EPS = BENEFIT PER ACTION.

After several consecutive quarters that have probably left headaches for investors who broke their heads, the result of the last quarter was a breath of fresh air. Although the company's production numbers will not impress anyone, Exxon has increased production in the right places, with higher oil production and lower natural gas production than North America, which is a real achievement. brake on profitability. As a result, the company benefited immensely from the higher realized prices on its oil production and turned its US upstream results into a significant profit center instead of dampening its earnings.

Equally impressive was the company's downstream and chemical sectors, which benefited from the oil price spreads in the United States and Europe. The only reason his income in the chemical sector has declined is because of a significant downtime scheduled in his Singapore chemical complex.

Data source: ExxonMobil. Graphic by author.

The strong points

• ExxonMobil's production figures finally reached a turning point in the last quarter. Although production decreased by about 2.6% over the same period last year to stand at 3.78 million barrels of oil equivalent per day, its production increased by 5% compared to the previous quarter, excluding the effects of maintenance and divestment. Management stated in the previous teleconference that the second quarter was going to be the end of the decline in production, and that seems to be the case.
• ExxonMobil has announced a ninth discovery in its exploration block in French Guiana. The field has already been evaluated at 4 billion barrels and should be upgraded soon after the announcement of this latest well. Management has deployed a second drill ship in the area to accelerate exploration work in the area.
• The company also announced that it had completed the modernization of its refineries in Antwerp, Belgium, and Beaumont, Texas, in order to recycle an additional 95,000 barrels a day of residual hydrocarbons at high levels. sulfur content in diesel and low sulfur diesel fuel. Exxon has made these upgrades in anticipation of new shipping rules that will require ships to reduce the sulfur content of their fuels by 2020.
• ExxonMobil also gained more acreage in Brazil during the last offshore auction. The 71,500-acre block brings ExxonMobil's total holdings to approximately 2.3 million net acres.
• Management has announced that it has signed a first framework agreement for a new major chemical complex in China, including 1.2 million tonnes of ethylene production for food production facilities producing polyethylene and polypropylene. The price tag for the installation will be given when the management will make a final investment decision.
• The New York Attorney General filed a civil suit against ExxonMobil, accusing the company, according to the suit, of "misleading investors about the risk that climate change regulation poses to its business".
• ExxonMobil has joined the Oil and Gas Climate Initiative, an organization of oil and gas companies seeking ways to mitigate the risks of climate change by focusing on carbon capture, reducing methane emissions and the efficiency of transport.
• The board of directors approved a 6.5% increase in Exxon's quarterly dividend, which should reach $ 0.82 per quarter or $ 3.28 per year.

Source of the image: Getty Images.

What management had to say

The central theme of the last quarter was the benefits of integration and the opportunity to benefit more from each barrel. In the quarterly teleconference, Jack Williams, Senior Vice President of Chemicals and Downstream, explained how much logistics, refining, and chemical production is generating a lot of value in the Permian Basin.

[T]Today, we have the capacity to process 450,000 barrels a day of light crude oil in our Gulf Coast refinery, which has been an important incentive to ensure our refineries have an efficient transportation capacity well beyond the production of Permian equity. At present, we have about 270,000 barrels a day of guaranteed capacity, which is expected to increase further in the coming quarters. And the 450,000 barrels a day are also increasing. In addition to the Beaumont expansion, we are working on other smaller projects to add about 50,000 additional barrels to increase our light oil processing capacity to the Gulf Coast to more than 750,000 barrels per day. . And then, in addition to our three integrated Gulf Coast facilities, we operate Permian crude on 10 other sites outside of the United States, including our rough cracker in Singapore.

[…] Combining the past year with the current environment, we have generated more than $ 1.2 billion throughout this value chain. And this is clear from the current environment, highlighting the value of our approach in the Permian.

You can read a full transcript of the ExxonMobil teleconference.

XOM data by YCharts

A prelude to things to come?

One of the most frustrating aspects of Exxon's results in recent quarters has been the decline in production. While other major oil companies were ramping up production at staggering rates, Exxon was slowly declining due to a combination of timing of projects, natural decline of fields, and deliberate reduction in US natural gas production. .

During the last quarter, however, the company has proven that it does not need to increase production at a high rate to generate cash flow. The goal of making the most of each barrel produced by logistics, refining and processing is a reflection of the state of mind of CEO Darren Woods, who spent decades down the road from sector.

It will still take a long time for some of ExxonMobil's largest and most profitable projects – Guyana, LNG in Mozambique and Brazil – to begin operations. As a result, investors today should always have an eye on 2021-2025 as these sources of production become operational. Meanwhile, the company has a way to generate large profits that will make its quarterly results much less frustrating than the previous few.

Tyler Crowe holds shares of ExxonMobil. The Motley Fool has no position in the mentioned actions. Motley Fool has a disclosure policy.