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Summary

  • Exxon reported Q2 earnings of $8.78 billion on revenue of $111.65 billion, topping analyst estimates.
  • Exxon raked in a $22.55 profit per barrel in the second quarter, more than it has since oil prices spiked in 2008.
  • The Company reported its lowest levels of oil and natural gas production in five years.

Second Quarter Earnings

ExxonMobil (NYSE:XOM) reported Q2 earnings of $8.78 billion on revenue of $111.65 billion, topping analyst estimates. The 28% rise in earnings occurred despite the lowest levels of production in half a decade. XOM is trading down on the earnings beat due to a 5.7% drop in oil and gas production, the lowest amount since Q3 2009. Shareholders also didn't like the earnings beat with respect to XOM's asset sales, selling its holdings in two Hong Kong corporations.

Despite high oil prices the company was unable to increase production efforts in part from challenges in replacing the amount of oil and gas from depleting fields. XOM will need to invest in new projects and increase efficiency levels on existing ones to meet the demands of the global economy and more importantly, its shareholders.

Key Highlights

Several key metrics from the earnings report are provided;

  • Exxon raked in a $22.55 profit per barrel in the second quarter, more than it has since oil prices spiked in 2008.
  • Earnings in XOM's exploration and production business rose 25% Y/Y to $7.88B, helped by higher prices and a $1.2B boost tied to divestitures in Hong Kong and other items.
  • Refining and marketing earnings surged 80% to $711M, as weaker refining margins were offset by lower operating expenses, increased petroleum sales and other impacts.
  • Q2 production fell 5.7% Y/Y to 3.8M boe/day; excluding the expiry of its Abu Dhabi onshore concession, the decline was 2.3%.
  • Exxon credited an asset sale in Hong Kong, in which the company sold its 60% share in Hong Kong's local electric utility Castel Peak Power Co, as well as Exxon's 51% share in Hong Kong's Pumped Storage Development Company.
  • Dividends per share of $0.69 increased 9.5 percent compared with the second quarter of 2013. The Corporation distributed $6 billion to shareholders in the second quarter of 2014, including $3 billion in share purchases to reduce shares outstanding.

Important Projects For Future Growth

Moscow is now the leading oil producer in the world, producing more oil than Saudi Arabia. While it might not be politically correct to collaborate with Russia right now, and might alienate a few voices domestically, for an oil behemoth like XOM to bid Moscow - and the Arctic - it would be nothing short of business suicide. The Arctic is believed to possess 20% of recoverable oil and gas resources underneath it, and animosity with Russia would mean losing access to that opulent region.

If XOM does abandon Russia in these tricky times, it would find it impossible to make a comeback later on. Neither Putin nor the current Sanctions are permanent, but the Arctic Reserves will be there for production, whether XOM is the one to produce the reservoir or not. XOM has been doing business in Russia for over two decades. Its Neftegas subsidiary possesses 30% of one of the leading foreign direct investment projects via Sakhalin-1 project in Far East Russia. Sakhalin-1 is responsible for around 182,000 barrels of oil equivalent per day (boepd), making Exxon's stake 54,000 boepd.

However the company pointed to several key projects, from its ventures in the oil sands of Canada, natural gas efforts in Papua New Guinea, and one of XOM's more ambitious projects in years in which the company is exploring Russia's Arctic seas. The Arctic seas project has become under fire as both the United States and Europe has filed sanctions against Russia, which calls for blocking Russian exports of energy technologies for oil projects. Despite the sanctions against Russia, XOM's decision to continue operating in the country could prove to be vital for shareholder growth. XOM's expected Russian exploration budget of $3 billion would result in around 2.3 billion barrels of oil and 485 billion cubic feet of gas. Russia continues to be pivotal for XOM's long-term goals. XOM simply has too much to lose by abandoning Russia, a country that would be difficult to reenter once left. All of these projects should please shareholders, as they will increase production rates and allow Exxon to reverse the recent decline.

Source: ExxonMobil Q2 Earnings And Russian Operations