Company overview - Exxon Mobil Corporation is engaged in energy business. The Company is engaged in the exploration, production, transportation and sale of crude oil and natural gas, and the manufacture, transportation and sale of petroleum products. The Company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and a range of specialty products. The Company's segments include Upstream, Downstream, Chemical, and Corporate and Financing. The Upstream segment operates to explore for and produce crude oil and natural gas. The Downstream operates to manufacture and sell petroleum products. The Chemical segment operates to manufacture and sell petrochemicals. The Company has exploration and development activities in projects located in the United States, Canada/South America, Europe, Africa, Asia and Australia/Oceania.

 

XOM Details
 
Q1FY17 driven by growth in Non- U.S earnings:  For the three months ended 31 March 2017, Exxon Mobil Corporation revenues increased 30% to $63.2 billion, driven by non - US segment as it grew by 28% to $40.6 billion. Net income grew by 121% yoy to $4.01 billion due to an increase in commodity prices and continued focus on controlling costs and operating efficiently. Further, net income benefited from decline in exploration costs as it decreased by 69% to $34 million in US, while income from equity affiliates increased 37% to $1.71 billion.
 
 
Segment wise earnings summary break-up in Millions; (Source: Company reports)
 
For Q1FY17, upstream volumes declined by 4% yoy to 4.2 million oil-equivalent barrels per day, primarily due to the impact of lower entitlements due to increasing prices, and higher maintenance. However, upstream earnings of $2.3 billion improved on higher liquids and gas realizations, while downstream earnings of $1.1 billion benefited from increased refinery throughput. Chemical earnings of $1.2 billion were impacted primarily by lower margins. Capital and exploration expenditures totaled $4.2 billion as the company advanced investments across its integrated businesses. During the quarter, the company distributed $3.1 billion in dividends to shareholders.


Income statement summary in Millions USD; (Source: Company reports)
 
Breakthrough joint research into advanced biofuels:  ExxonMobil and Synthetic Genomics announced a breakthrough in joint research into advanced biofuels involving the modification of an algae strain that more than doubled its oil content without significantly inhibiting the strain’s growth. Using advanced cell engineering technologies at Synthetic Genomics, the ExxonMobil-Synthetic Genomics research team modified an algae strain to enhance the algae’s oil content from 20% to more than 40%. Importantly, this key milestone in advanced biofuels program confirms that algae can be incredibly productive as a renewable energy source with a corresponding positive contribution to environment.

Capturing attractive opportunities in Upstream segment:  ExxonMobil’s exploration program pursues a diverse set of high-quality resource opportunities as the company is focused on exploring in areas with high resource potential, such as Guyana, Mozambique, Cyprus, and deep-water offshore Newfoundland and Labrador. It is also focused on areas near current operations, where discoveries can leverage existing infrastructure, including Papua New Guinea, West Africa, and the Gulf of Mexico. Recognizing the opportunity presented by current market conditions, it is investing in large-scale seismic acquisition programs. In 2016, the company participated in more than 24,000 square miles of 3D seismic surveys covering diverse geological basins around the world, including in Eastern Canada, Mexico, Guyana, Ireland, South Africa, and Mozambique. Further, this data enables it to evaluate recently captured acreage and identify new prospective exploratory drilling locations. Moreover, proprietary research in advanced seismic imaging and high-performance computing enhances its ability to extract maximum value from seismic data, while the recent large-scale discoveries in Guyana and Nigeria demonstrated the success of these efforts.


Upstream ROCE and Volumes; (Source: Company reports)

Strengthening the portfolio in Downstream: Investments across the value chain continue to strengthen ExxonMobil’s portfolio of refineries and other advantaged manufacturing assets. The company continues to increase its feedstock and logistics flexibility, upgrade the value of hydrocarbon molecules and expand volumes of specialty products. The company’s ability to generate attractive returns across the business cycle is driven by disciplined investment program, focus on safe and reliable operations, and its unwavering commitment to world-class brands and products. ExxonMobil’s Downstream segment is meeting customers’ growing need for transportation fuels, lubricants, and specialties. The segment is generating solid cash flow to support shareholder distributions and investments in the business. Moreover, Exxon is consistently focused on operational excellence, leveraging its global scale and maximizing integration across businesses to optimize costs and maximize returns. As a result, cash operating costs in its refinery network remain well below the industry average. However, it has divested smaller, less-competitive facilities and redeployed resources and capital to larger, more efficient sites that are integrated with chemical and lubricant manufacturing. Since 2005, these steps have reduced company’s refining capacity by more than 1.4 million barrels per day.
 

Downstream & Chemical ROCE and Petroleum Product Sales; (Source: Company reports)
 
Reducing costs and increasing operational efficiency: ExxonMobil is constantly focusing on reducing costs and improving efficiency. In the Permian, for example, it has doubled footage drilled per day since 2014 in horizontal Wolf camp wells and reduced per-foot drilling costs by 71%. It is also improving recovery by implementing longer lateral well lengths and optimizing completion designs. Coupled with drilling and completion cost reductions, this has enabled it to decrease unit development costs by 72% since 2014. The company has successfully reduced cash field expenses in the Permian horizontal program to approximately $5 per barrel, a 46-percent reduction since 2014 and assessing unconventional resource development opportunities in Argentina. Targeting prolific resource potential in the Vaca Muerta reservoir with interest in the Neuquén Basin totaling approximately 330,000 net acres. In 2016, drilling and facilities work began on a five-well pilot project in the Bajo del Choique/La Invernada block, which represents the first phase of activity under the recently approved 35-year Unconventional Exploitation Concession. The company also received approval for a three-well pilot program on the Pampa de las Yeguas Block, which will commence following the Bajo del Choique/La Invernada pilot.
 

Refinery unit cash operating expenses; (Source: Company reports)

Non-OECD countries to drive global energy demand: The company expect energy demand to increase about 25% by 2040 with global population growth and improvements in living standards worldwide. Strong economic growth means rising living standards and around the world, the middle class will more than double in the next 15 years with countries outside of the Organization for Economic Co-operation and Development (OECD) seeing particularly high levels of economic growth. Energy consumption will rise as global economic output doubles and more people gain access to personal vehicles, better health care, and modern technologies like air conditioning, home appliances, and smart phones. Between 2015 and 2040, global GDP is projected to double, and energy demand will rise about 25% even as energy efficiency dramatically improves, and all economic energy sources are needed to meet this considerable demand growth. Oil and natural gas will continue to supply about 55% of the world’s energy needs through 2040, while nuclear energy and renewables will grow about 50% to approach 25% of the world’s energy mix.


Global energy demand and average growth from 2015 to 2040; (Source: Company reports)

Robust balance sheet with healthy cash flows: For Q1FY17, cash flow from operations and asset sales stood at $8.9 billion, including proceeds associated with asset sales of $687 million. The company spent $4.2 billion on capital and exploration activities, down 19% from the first quarter of 2016. During FY16, cash from operations stood at $22 billion and strong balance sheet provides unique capacity to focus on flexible capex program in low-price environment, and portfolio management to deliver value.


Company’s financial strength; (Source: Company reports)

Advancing Unconventional Developments in U.S: The company is covering more than 11 million net acres with diverse asset base in 14 U.S. states, Western Canada, and Argentina. It has interests in more than 55,000 producing oil and natural gas wells, material holdings in virtually every major unconventional play. Further, the company is benefiting from expertise built from completing more than 5,000 horizontal wells since Barnett operations began in 2004, and operate about 80% of U.S. unconventional assets, facilitating optimum development. Exxon has a robust and deep inventory of more than 24,000 unconventional oil and gas wells that deliver a greater-than-10-percent rate of return at $60 per barrel oil and $3 per thousand cubic feet of gas.


Extensive unconventional portfolio; (Source: Company reports)
 
Stock Performance: The shares of XOM has declined 13.8% in the last one year, while it is down 5.5% in the past five years as on July 06,2017, owing to crash in global oil prices and volatility in other commodity prices. However, XOM has a good dividend paying history for 30 consecutive years despite the relatively low yield. Moreover, its long-term debt makes up just 12% of its capital structure and gives the huge flexibility compares to peers. Notably, Exxon has made extensive use of its balance sheet strength during the downturn to support its business and dividend.  Further, Exxon is integrated oil major, with oil and natural gas drilling, chemicals and refining assets. Given the on-going investments in expansion of its exploration activities, improving efficiencies coupled with rising demand for energy, we believe that the XOM is well positioned in the industry. We give a “Buy” recommendation on the stock at the current market price of $80.85


XOM Daily chart; (Source: Thomson Reuters)
 

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