Exxon Mobil (XOM) is about to report earnings, and the numbers put up by XOM stock May 1 will set the overall tone for things to come in the enegy sector.
As one of the largest producers of oil and natural gas, as go Exxon earnings, so goes much of the industry.
It has been middling year for Exxon Mobil stock, with XOM up about 13% in the last 12 months vs. about 16% for the S&P 500. As for earnings, three quarters’ worth of XOM reports have been a mixed bag of higher production/capex costs, lower profits and higher (albeit slightly) production.
That means the pressure is on XOM stock to put up a strong earnings performance.
Not to mention that, as one of most widely held stocks, Exxon earnings will matter to a host of investors who hold mutual funds in ETFs in one way or another, regardless of whether you directly hold Exxon Mobil stock.
So if your focus is on the XOM earnings report — and it should be — here are five things you’ll want to watch:
1. Lower Profits for XOM
Exxon earnings are going to be lower this quarter overall. Despite recent gains in the pricing for Brent crude — thank the conflict in Russia/Ukraine for that — the average price for the European benchmark was more than 5% lower year-over-year during the first quarter. That lower average price basically means that Exxon was forced to sell its production at a cheaper amount and will negatively impact Exxon’s crude oil revenues.
Also hindering XOM stock will still be its struggling downstream and refining sector. While crack spreads have widened over the last few months, they still aren’t as juicy as a year ago. Exxon should see slightly better performance from its downstream sector, but investors shouldn’t expect miracles. All in all, analysts estimate that the energy firms refining sector will still put a crimp in Exxon’s earnings and in Exxon Mobil stock as a result.
At the end of the day, analysts expect XOM to report earnings of $1.88 per share. That’s an 11% decrease versus a year ago and will be the fourth quarter of lower earnings for the integrated giant. On the bright side, revenues are predicted to rise by 3.3% to reach $15.13 billion for the quarter.
2. Natural Gas Starts To Pay Off in Exxon Earnings
At first blush it seems that Exxon went hard into natural gas production at just the wrong time. Its 2010 purchase of XTO for $35 billion was basically at the top of natural gas prices- at just over $15 per MMBtu. As fracking has taken hold, natural gas supplies continue to increase and prices for the fuel have dropped steadily. At one time, natural gas was poised to drop through the $1 per MMBtu mark.
All of that changed this past winter.
Freezing cold and persistent low temperatures have caused supplies of natural gas to dwindle to some of the lowest amounts in years. That’s also helped push prices for the fuel upwards. Spot prices Henry Hub natural gas have popped 45% on a year-over-year basis. And with XOM still a major natural gas producer, those higher prices for natural gas should help cushion its profits even though lower oil prices and refining margins have been weak.
It pays to be a diversified producer of energy.
3. Exxon Should Have Higher Production
Like many of the world’s largest energy firms, the last few years for XOM has been one of dwindling production. Finding large sources of oil & natural gas have been difficult to find- especially on the oil front. An in order to move to move the needle at XOM, those finds need to be pretty big.
For Exxon’s upcoming quarter, we should a build-up of new production capacity hitting the tape. Recently coming online was Exxon’s massive liquefied natural gas (LNG) facility in Papua New Guinea as well as additional production from its Kearl oil sands project in Canada with partner Imperial Oil (IMO). These two projects– — along with new wells in the Gulf of Mexico and production from its partnership in Russia — should add about 300,000 barrels per oil equivalent per day to Exxon’s production.
Longer term, these various projects should help XOM regain its production mojo and finally turn the tide of production decreases.