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

Investing £500m in major UK fuel refinery: Exxon Mobil Corporation (NYSE: XOM), one of the world’s top three oil and energy US based company, is into the exploration, production, transportation  and sale of crude oil, natural gas and petroleum products on a worldwide basis. The company also operates electric power generation, and coal and minerals operations. Further, the company manufactures and markets fuels, lubricants, and chemicals. The company has planned to invest £500m (more than $650 million) for an upgradation of the UK's largest fuel refinery of crude. This project will comprise construction of a new hydrotreater unit and hydrogen plant at Fawley refinery, that is near Southampton. This refinery already produces fuel for one in six UK cars and the works will lead the plant to create higher quantities of diesel. The site, that consists of Esso Petroleum Company and Exxonmobil Chemical, have been based for more than 90 years and operates around 2,000 ship movements and 22m tonnes of crude oil every year. Therefore, with the upgradation of the project the country's reliance on fuel imports will reduce. At the site on the south coast every day, approximately 270,000 barrels of crude oil is produced, and Fawley accounts for 20 per cent of the UK refinery capacity. Fawley will be able to produce ultra-low sulphur diesel by processing crude that is sourer and heavier. XOM is in the process of completing relevant permits and planning applications and plans to make a final investment decision on the project by next summer. For the investment decision, the permission from ExxonMobil's board of directors is awaiting, but this shows the company's efforts to meet the increasing demand for premium fuels in Britain. Meanwhile, XOM in past 30 years has never put in such a massive amount in the U.K. market. Therefore, if the project is approved, it would be a major investment in the Fawley and its ability to produce high quality fuels for the UK economy comprising of hundreds of millions of pounds. The company plans to make the final investment decision regarding the project in the first half of 2019.

Agreed key terms for the sale of Alaska North Slope natural gas: XOM has agreed to key terms for the sale of Alaska North Slope natural gas to a state-sanctioned Alaska Gasline Development Corp. that plans to construct a $34 billion liquefied natural gas project. This will also include an 800-mile (1,287-kilometer) pipeline to move gas to an ocean port. XOM has committed to the Alaska Gasline Development Corp. on a price and volume basis for the sale of natural gas from fields at Prudhoe Bay and Point Thompson along the state’s north coast. XOM is the largest holder of discovered gas resources on the North Slope. The company has been working for decades for moving Alaska gas to market. This preliminary agreement is good for both Alaska and XOM and reflects a significant milestone to help advance the state-led gasline project. However, the agreements related with volume and price are not final. Currently, this project is going through the federal regulatory process and the company expects a final environmental review in November 2019 and expects a record of decision in February 2020. During this process, the Development Corporation will be working out final details of the agreements with BP and XOM and seeking offtake agreements with LNG purchasers in China, Japan and Vietnam. Meanwhile, the Development Corporation had made a parallel agreement with BP in May. The negotiations are undergoing with ConocoPhillips. All three producers are expected to be part of the project. BP in May, and now XOM are clear that they are on board with the project, the project structure. It is crucial and one has to evaluate what the project would be paying for natural gas is crucial. Therefore, it is very crucial to see each step for financing and for looking for investment into the next stage of the project. Moreover, Prudhoe Bay and Point Thompson are anchor fields for the project and currently hold 30 trillion cubic feet of gas. The company is targeting Asian market for most sales. The state has been planning to advance the proposed pipeline with financial interests in China. Therefore, the purchase of the gas contracts, the sale of LNG contracts, and to an extent, the financing agreement, - all these contracts are required to be progressed at the same time. Meantime, the state had signed an agreement regarding a December 2019 production deadline at Point Thompson, which includes 25 percent of discovered North Slope natural gas. On the other hand, a lawsuit settlement was signed in 2012 that required timelines for production at Point Thompson. The failure to meet requirements by the end of 2019 could have meant relinquishment of leases. The new agreement formed to align Point Thompson production with the LNG project. The agreement has also extended the production deadline as long as the LNG project progresses. XOM, the largest holder of discovered gas resources on the North Slope, has been working to combat the challenges of bringing Alaska's gas to market and so the deal signed for the state's Alaska LNG project is an important milestone.

Ongoing Developments: XOM is progressing with a multi-billion dollar project at the company’s integrated manufacturing facility in Singapore for the expansion of the lubricant base stocks production to meet growing demand. The company has planned to apply proprietary technologies to convert heavy by-products to high-quality base stocks designed to help blenders achieve greater formulation flexibility and meet future lubricant performance expectations. Project startup is projected in 2023. Moreover, the company has announced greenhouse gas reduction measures which are expected to lead to significant improvements in emissions performance by 2020. This comprises a 15 percent decline in methane emissions and a 25 percent decline in flaring compared with 2016. The company also planned to improve its industry-leading energy efficiency in refining and chemical manufacturing facilities. Since 2000, the company has invested more than $9 billion on lower-emission energy solutions such as cogeneration, biofuels, carbon capture, flare reduction, energy efficiency and storage and other technologies.


Resource Potential in Brazil_Peer Comparison (Source: Company Reports)

Strengthened the Portfolio during the second quarter 2018: XOM during the second quarter 2018 had made eighth oil discovery offshore Guyana at the Longtail-1 well and encountered approximately 256 feet (78 meters) of high-quality, oil-bearing sandstone. XOM and its co-venturers have till now discovered  an estimated recoverable resources of more than 4 billion oil-equivalent barrels on the Stabroek Block. The company is advancing the Liza Phase 1 project with the start of development drilling offshore Guyana. Moreover, XOM has completed the purchase of half of Equinor ASA’s interest in the BM-S-8 block offshore Brazil, that comprises the pre-salt Carcara oil field. The production from the field is projected to commence in 2023-2024. The company also increased its holdings in Brazil’s pre-salt basins and now has interests in 25 blocks offshore Brazil. Additionally, XOM and Qatar Petroleum have agreed to partner to develop Argentina’s resources to further support domestic production.


Second Quarter 2018 Financial Highlights (Source: Company Reports)

Business Performance during the second quarter 2018: During the second quarter 2018, Crude prices increased but natural gas prices were mixed. The Global refining margins expanded on the back of higher industry refinery maintenance activity and increased seasonal petroleum product demand in Q2 2018. U.S. tight oil grew in the Permian and Bakken to over 250,000 oil-equivalent barrels per day, which is a rise of 30 percent from the same period last year. The Hebron field in Canada exceeded the expectations, and ramped up to 25,000 oil-equivalent barrels per day in the second quarter. However, the natural gas volumes were affected due to lower seasonal demand in Europe, near-term shifting of investments in U.S. unconventional from gas to liquids and downtime in LNG operations, notably in Qatar. The production at Papua New had returned to normal operations in April and reached record daily LNG production rates in June 2018. Moreover, throughput and earnings were affected due to heavy turnaround and maintenance activities during the second quarter. The depreciation in the Euro and British pound versus the U.S. dollar had negatively impacted the earnings. Additionally, the Chemical business posted highest quarterly sales since 2007, and new volumes in Singapore and the U.S. contributed more than 530,000 metric tons of sales during the second quarter.

Second Quarter 2018 Financial & Operational Performance: During the second quarter 2018, the company has posted an estimated earnings of $4 billion compared with $3.4 billion a year earlier. Cash flow from operations and asset sales was $8.1 billion, that includes the proceeds related with asset sales of $307 million. During the second quarter, XOM distributed $3.5 billion in dividends to shareholders. Capital and exploration expenditures were up 69 percent to $6.6 billion from the prior year, due to key investments in Brazil, the U.S. Permian Basin and Indonesia. Moreover, Oil-equivalent production fell 7% to 3.6 million barrels per day from the second quarter of 2017. Excluding entitlement effects and divestments, the liquids production increased as growth in the Permian and Bakken in the U.S. and Hebron in Canada more than offset decline and higher downtime driven by scheduled maintenance. Natural gas volumes fell 10%, excluding entitlement effects and divestments.


Outlook (Source: Company Reports)

Stock Recommendation and Analysis: During the second quarter 2018, XOM has strengthened its portfolio; and the company now plans to invest £500m in major UK fuel refinery. Project milestones that indicate growth potential with discovery offshore Guyana, production of hydrogenated hydrocarbon resin and halobutyl rubber at its integrated manufacturing complex in Singapore, acquisition of PT Federal Karyatama to enhance position in international market, a new joint venture to advance development of the Gulf Coast Growth Ventures project, and greenhouse gas reduction measures are indicative of better future. On analysis front, the group is maintaining its return on equity over 2% over the last 3 years and given the EPS scenario based on developments, there can be an upside of price in double digits going forward. The technical analysis shows that the resistance level may be witnessed around $84 and any movement above it may give a boost further or a possible breakout while the support is being found at $80 level. We give a “Buy” recommendation at the current price of $ 83.13 looking at the growth factors and macroeconomic landscape.

 
XOM Daily Chart (Source: Thomson Reuters)

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