Options Trader: Thursday Thumping (for Exxon)

Exxon (XOM) missed!

I cannot tell you how happy I am about this because it means the world still makes sense, fundamentals ARE real and you can’t just make a stock go higher by mindlessly pumping money into it. Profits were, of course, monstrous at $10.9Bn, but costs are out of control and they missed by .08 out of $2.12 expected despite Q1 oil averaging 10% more than Q4, when they made $11.7Bn on a 30% boost in oil prices from the previous quarter.

To be fair, XOM did spend a whole extra $1.2Bn on capital and exploration costs than last year, this is very nice of them as we (the consumers) gave them $116Bn (up $32Bn), which they claim they use to look for oil while shareholders bought $92Bn worth of XOM stock in Q1, expecting them to use some of their money to make those shares more valuable in the future. "Higher crude oil and natural gas realizations, driven by record worldwide crude oil prices, were partly offset by lower refining and chemical margins, lower production volumes and higher operating costs," Exxon Mobil said.

So they took in $32Bn more than Q1 ‘07 (up 38%) and made just $1.7Bn more (18%), sounds like diminishing returns are kicking in pretty hard at XOM! Production was 5.6% LESS than last year and one of the reasons they list is (and I kid you not!) "OPEC quota effects." That’s right, XOM is effectively a member of OPEC and abides by their rules and has cut off your oil supply in order to support ridiculous prices. Isn’t unregulated capitalism wonderful?

In fact, upstream earnings from the exploration and production unit were UP $2.7Bn to $8.8Bn (up 30%), it’s their single largest profit center YET THEY REFUSE TO EXPLORE AND PRODUCE IN ORDER TO JACK UP PRICES!

Another stupid, non-productive investment made by XOM was, as usual, the purchase of their own stock. In order to keep up the pretense that they aren’t totally incompetent and driving a once-great American corporation into the ground, the board repurchased $8Bn worth of their own stock in Q1 alone! That’s out of $92Bn worth of total transactions at an average cost of $88 a share, close to 1/10th of all transactions! What will happen to this company when they run out of money to buy back stock? They spent $32Bn on their own stock last year as well, jacking the price up from $75 to $95 while not looking for oil.

I’m not the only one fed up with this nonsense - Rockefeller family members, the oldest continuous shareholders in Exxon, added their names to a shareholder resolution to separate the chief executive and chairman roles at Exxon, and called on other shareholders to join them. While family members praised Rex W. Tillerson, they concluded that an independent board chair remains "key to Exxon Mobil’s future."

OK, enough about Exxon, they are done and I wish I had kept those damn puts but we still have our Energy (XLE) puts that should do quite nicely as well as our Chevron (CVX) puts, which may be a goldmine when they report thanks to Goldman Sachs (GS) herding their sheep into the stock all week as we shorted and shorted them!

Asia was mainly down this morning as India faces a labor shortage that is slowing the economy and the BOJ painted a gloomy picture for the year’s outlook. Asia may sell in May and go away, leaving a lot of money to fly into the US markets this month. Europe celebrated May Day by being mainly closed as workers staged protests against rising food and energy prices leading to riots in Germany and Turkey. Viva la revolution I say!

The British Airways (BAIRY)/Continental (CAL) talks that we bought CAL on the rumor of are now official but we took a double and ran on our June play yesterday.

The BOE says that banks are overstating their losess. As they say in the Rocky Horror Show: No sh*t Sherlock! Maybe some clever government official in this country will figure this out as well…. ROFL! You didn’t think I was serious did you? "Clever" and "government official" together? Not in this administration brother!

XOM and CVX will drag down the Dow so ignore the headlines and let’s concentrate on the individual components and the transports, who should do quite well. We still want to see oil get down below $110 but not likely this week (and boy are they in trouble if it does!). Las Vegas Sands (LVS)had a big disappointment in Macau, that will hurt Wynn Resorts (WYNN) as well and, as usual - we’ll be looking for tech leadership for positive signs of rotation.

Don't panic, keep stops on the callers because I’m a buyer right now IF we can hold our levels!

Comments

[Ames Tiedeman:]

OIL is correcting and so to will XOM.

2008 May 01 10:24 AM

[silverspring:]

Hi Philip, Could you let us know what kind of daily info are the must or necessary to you to review throughout a day, and why? Thanks.

2008 May 01 10:29 AM

[JREwing:]

I stick to RIG, SLB , HAL, OXY, APA, APC. Exxon is to big handle small projects and there are no more big projects, at least not for privately held companies. Short the majors, long smaller outfits and deepwater guys.

2008 May 01 11:44 AM

[Ames Tiedeman:]

At this time you do not buy the big oil names. You buy PWE, HTE, PGH, PVX and AAV. The 5 Canadian Oil Trusts will real dividends.

2008 May 02 07:03 AM

[bill d:]

Sure oil will "correct":

A. does that mean it will go UP ?

B. if it goes down then my formula says: amt down X 2 = amt back up

I would guess XOM spends way more still fighting Valdez then it does on exploration, etc.
Why not - they got us by the balls.

2008 May 02 10:48 PM

[william meesit:]

HI FRIEND

2008 May 08 02:08 AM

[william meesit:]

HI FRIEND

2008 May 08 02:08 AM