Exxon Mobil's (NYSE:XOM) stock price movement has been impressive despite some concerns about the company - the stock is up over 9% over the last six months. However, since the start of the year, the stock has not been able to keep the momentum and it has only gained about 1% in that period. There have been concerns about the production levels of the company that has caused the stock price to linger. However, the increased expected operational yield resulting from Papua New Guinea project will add substantial benefits to the company in the coming years. Moreover, Exxon Mobil is partnering with other oil and gas exploration companies to further improve its upstream operational results in the coming quarters.
Exxon Mobil: Growth Coming Back?
The first-quarter results were not that impressive, which brought the growth of the company in question. Field declines and decreasing refining margins have persisted in the first quarter leaving earnings at $9.1 billion, which is down 4% from the same period last year. However, upstream segments are progressing much better than downstream in the integrated energy business model. Therefore, Exxon Mobil reported upstream earnings of $0.87 billion in the first quarter, up 11% from the same period last year. The company has also reduced its exposure towards natural gas and targeted higher margin liquids production which boosted the upstream profits in the first quarter. Moreover, natural gas production fell 9% in the first quarter due to lower demand in the region. The downstream segment profits also continue to fall decreasing $732 million in the quarter due to weaker margins.
The recent addition of PNG LNG project in Papua New Guinea has added substantial operational strength to the company, increasing the annual yield by 1.5 MMBOE. This project should allow the company to make up for some of the decreased production from other segments. The company can also focus on getting the maximum yield out of its massive Kearl project, located in Canadian oil sands. The company is pursuing a vast expansion in the project which will double the initial production by next year. The company produced 315,000 barrels per day from its Canadian and South American region in the first quarter, the Kearl project expansion will enhance the total production substantially. The company also estimates the production capabilities of Kearl project with an ultimate recovery of 4.6 billion barrels for the next 40 years. The Kearl expansion will increase the upstream footprints of the company; thus increasing its profitability in the long-run.
Exxon Mobil and Rosneft OAO recently approved 4 arctic projects despite the U.S. sanctions in the region. The increased political tension in the region hindered American energy companies to explore the Arctic region, which has about 13% of world's total oil reserves and 30% of natural gas reserves. The two companies will join hands and develop hydrocarbon reserves in the Arctic. The projects will explore and develop four licensed oil-rich reservoirs at Anisinsk-Novosibirsk and Ust-Olenksk shelf sites in the Laptev Sea Zone, as well as the North-Wrangel-2 and South-Chukchi shelf reservoirs. Moreover, both the companies have also started working on non-Arctic projects as well, including a $300 million Siberian Shale drilling project that will become operational in early 2015.
Dividends and Fundamentals
Exxon Mobil is one of the best dividend payers in the market, and a large number of investors have picked the stock due to its ability to pay dividends. The company has been growing its quarterly dividends at more than 10% each year, and current quarterly dividend stands at $0.69 per share, yielding 2.7%. The company has managed to increase its operating cash flows at an average annual rate of 16.5% over the last five years, which shows strength in the business despite recent setbacks. The growth in the operating cash flows is higher than the growth in dividends, which should allow the company to continue growing its dividends.
Exxon Mobil is working on growing its assets and enhancing its production. The new projects will add substantial value to the overall asset base as well as the production volumes of the company. The stock price appreciation has been tepid over the last three months; however, as the production increases from these new projects, we might see better stock price performance. Furthermore, the company remains one of the best dividend payers in the market with solid growth in cash flows.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.