Exxon Mobil Corp (XOM) will announce its second quarter earnings results on July 26, 2012. The mean adjusted earnings expectations for the quarter are $1.953 per share, which shows a decline of 2.4% from its earnings of $2 per share reported in the preceding quarter.
Total revenues for the second quarter are estimated to clock in at $112.25 billion, meaning a decline of 9.5% as compared to total revenues achieved in the first quarter of $124.05 billion.
The estimated decline in revenues and earnings are primarily due to the decline in prices of oil and natural gas in the U.S. and international markets.
The average price of West Texas Intermediate Crude Oil (WTI) for the second quarter was $94.44 per barrel, signaling a decline of 9.7%, as compared to the average price of WTI, for the first quarter, of $104.57 per barrel.
The average price of Brent Crude Oil for the second quarter was $107.77 per barrel, meaning a decline of 7% as compared to the average price of Brent Crude Oil of $115.88 per barrel.
The average price of Henry Hub natural gas was $2.505 per mmbtu for the second quarter, showing a decline of 13%, as compared to the average Henry Hub natural gas price of $2.89 per mmbtu in 1Q2012.
As can be seen from the table below, a majority of the revenue contribution is from the downstream business.
As shown below, the earnings contribution for the upstream segment is the highest. This is due to the low margins in the refining and marketing businesses.
XOM's production mix is 48% gas production and 52% oil-and-liquids production. The average production per day for 2011 was 4,569 thousand barrels of oil equivalent (BOE). Below is a table showing the production mix contribution, both domestically and internationally.
Developments during the Quarter
- XOM pulled out of its venture in Poland for the exploration and production of shale gas, as the estimates reported by the government at the end of the first quarter were reduced by 90%. XOM believes that the current technology is not economically viable for production of shale gas.
- XOM and Rosneft signed agreements in June to jointly develop shale oil reserves in Western Siberia, and build a joint Arctic Research Center for offshore developments.
- XOM plans to build a multi-billion dollar chemical plant in Texas to take advantage of cheap shale gas in North America.
- According to a recent study, German shale gas reserves have been estimated to be around 22 trillion cubic meters (CBM). XOM is among the companies lobbying for development of these resources, even though there is skepticism over the production methods, which are environmentally harmful. Any development on this front may be beneficial for the company.
- XOM expected to benefit from large gas reserves in offshore East Africa, where the company has drilling and exploration rights.
- XOM has been under the spotlight ever since its deal in the autonomous Kurdistan region of Iraq to develop oil fields. In this regard, the Iraqi PM has written a letter to the U.S. government to intervene, and Washington has expressed its resolve to do just that.
- XOM announced earlier that it was considering the export of LNG from North America to higher margin markets, as it is the largest natural gas producer since its acquisition of XTO Energy Inc in 2010.
Since the quarterly earnings announcement from 2001, till the quarterly announcement of the first quarter of 2012, the company has witnessed 25 positive earnings surprises. The impact of these earnings surprises on stock price movement is given in the table below. The company beat the last five-out-of-eight estimates.
Stock performance after earnings surprise
1 day after
1 week after
1 month after
Three Month Performance
The stock price has declined 2.67% over the last three months.
XOM's performance is linked to the performance of oil and natural gas prices, along with technological advancements and discoveries of oil reservoirs. We are of the opinion that the company is in a strong financial position, and will continue to perform well with oil prices likely to recover in the future due to the economic recovery in the European Union (EU), China and the U.S.
Natural gas prices have been high in international markets due to energy demand in Asia, being driven by China and India, and the increased reliance on LNG by Japan in the wake of its nuclear crisis. Natural gas prices in the U.S. (Henry Hub Spot) dipped below $2 per mmbtu for the first time in a decade, and have rebounded ever since, currently trading around $3.16 per mmbtu.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.