Oil prices climbed sharply on Friday, the most in two months, after new data from the U.S. Energy Information Administration showed that U.S. crude production continued to decline, and crude stockpiles fell. Baker Hughes' (NYSE:BHI) data revealed that the number of active oil rigs in the U.S. dropped to the lowest level since 2009. According to Baker Hughes, the average U.S. rig count for March 2016 was 478, down 54 from the 532 counted in February 2016, and down 632 from the 1,110 counted in March 2015.
Brent crude oil rose 6.37% on Friday while WTI crude oil increased 6.60%. Oil prices have shown some recovery in the last three months, which makes me think that the worst for oil prices is over. Brent crude oil last price of $41.94 per barrel is already up 39.2% from its 12-year low on January 20, of $30.14, while WTI crude oil last price of $39.72 per barrel is up 28.8% from its January 20 low of $30.83.
Brent Crude Oil, June 2016 Leading Contract With 50 Day Moving Average
WTI Crude Oil, May 2016 Leading Contract With 50 Day Moving Average
Charts: TradeStation Group, Inc.
As a result of Friday's surge in oil prices, the prices of all five supermajor oil & gas companies rose sharply. Royal Dutch Shell (NYSE:RDS.A) shares soared 4.19%, the highest increase among the five supermajors. However, only Exxon Mobil (NYSE:XOM) among the group has achieved a positive return in the last 52 weeks (including dividend), as shown in the table below.
Exxon Mobil is scheduled to report its first-quarter 2016 financial results on Friday, April 29, before market open. According to 19 analysts' average estimate, Exxon is expected to post a profit of $0.33 a share, a 72% decline from its actual earnings for the same quarter a year ago. The highest estimate is for a profit of $0.55 a share while the lowest is for a loss of $0.01 a share. Revenue for the first quarter is expected to decrease 30.4% year-over-year to $47.05 billion, according to 6 analysts' average estimate. There was one up revision during the last seven days and four EPS up revisions during the past 30 days. Since Exxon has shown earnings per share surprises in most of its previous quarters, as shown in the table below, there is a good chance that the company will beat estimates also in the first quarter.
Data: Yahoo Finance
Since the beginning of the year, XOM's stock is up 6.7% while the S&P 500 Index has increased 0.2%, and the NASDAQ Composite Index has lost 3.1%. However, since the beginning of 2012, XOM has lost 1.8%. In this period, the S&P 500 Index has increased 62.8%, and the Nasdaq Composite Index has risen 86.2%.
XOM Daily Chart
XOM Weekly Chart
Charts: TradeStation Group, Inc.
Trying to estimate Exxon's earnings for the first quarter of 2016, I have calculated the average price of Brent crude oil, WTI crude, gasoline, natural gas and heating oil in the fourth quarter of 2015 and the first quarter of 2016. I also showed the last price (April 08). The results are indicated in the table below.
The average WTI crude oil price in the fourth quarter of 2015 was at $45.87 a barrel, and the average Brent crude oil price was at $48.59. Nevertheless, Exxon's upstream operations were able to show earnings of $857 million in the quarter while much lower than in the previous quarters, as shown in the chart below. For the first quarter, upstream results might come in much worse since oil prices have declined about 23% from the fourth quarter of 2015. Hence, it is pretty possible that Exxon's upstream operations will show a loss in the first quarter of 2016.
Exxon's downstream operations have benefited from higher crack spreads and lower natural gas price. The segment earnings in 2015 of $6,557 million were 115.3% higher than the earnings in 2014. The decline in the price of crude oil, in the first quarter, compared to the previous one was about 10% greater than the drop in the price of gasoline. However, it was about the same as the fall in the price of heating oil (heating oil is a part of the "distillate fuel oil" product family, which includes heating oil and diesel fuel). As such, we can expect a slightly better refining margin in the first quarter compared to the fourth quarter of 2015. Also, the natural gas price was about 15% lower than in the previous quarter. That should have contributed to the improvement in the refining margin in the first quarter. Refiners use natural gas as an energy source for the process; cheap natural gas helps to lower production cost.
Since Exxon's chemical earnings have been quite similar in the last few quarters, I assume the earnings in the first quarter should have been about the same as the earnings in the fourth quarter.
Currently the dividend yield is pretty high at 3.51%, and the payout ratio is at 74.9%. The annual rate of dividend growth over the past three years was pretty high at 9.7%, over the past five years was also high at 10.6%, and over the last ten years was also high at 9.7%. Exxon has increased its annual dividend payment to shareholders for 33 consecutive years. Even during the global economic crisis of the years 2008-2009, Exxon continued to increase its dividend.
Exxon Mobil is scheduled to report its first-quarter 2016 financial results on Friday, April 29, before market open. According to 19 analysts' average estimate, Exxon is expected to post a profit of $0.33 a share, a 72% decline from its actual earnings for the same quarter a year ago. There was one up revision during the last seven days and four EPS up revisions during the past 30 days. Since Exxon has shown earnings per share surprise in most of its previous quarters, there is a good chance that the company will beat estimates also in the first quarter. According to my calculations, taking into account commodities prices changes, Exxon might show a small loss in its upstream operations in the first quarter. In my view, XOM's stock should be included in every diversified large cap dividend stocks portfolio. While waiting for a significant rebound in the price of oil, investors can enjoy the generous dividend yielding 3.51% a year. The company has a long record of 33 years of continued raising its dividend. Even during the global economic crisis of the years 2008-2009, Exxon continued to increase its dividend.
Disclosure: I am/we are long RDS.A.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.