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

Sale of Gulf of Mexico assets: 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. Meanwhile,  XOM is now planning to sell many of its U.S. Gulf of Mexico assets on the back of higher oil prices, that has prompted the company to review its portfolio. As a result, XOM has asked a small number of parties to analyze the company’s potential interest in its Gulf of Mexico assets, that include the deep-water assets that currently produce approximately 50K bbl/day of oil, ahead of making a decision on how to proceed. There is an expectation that any sale could happen next year. XOM’s positions in the Gulf of Mexico include a 50% stake in development of the Julia oil field, a 47% stake in the Hadrian South natural gas field, and small non-operating stake in the Heidelberg and Lucius fields.


Financial Performance (Source: Company Reports and Thomson Reuters)

Distribution of low-sulfur marine fuel: XOM plans to supply fuel to meet the IMO 2020 standard at major ports in Singapore, Antwerp, Rotterdam, and Marseilles. XOM has announced that all of its low sulphur compliant fuels will be residual grades. They are expected to be compatible with each other, if the best practice guidance for bunkering, handling and storage is followed. The additional locations where the low sulphur fuel range will be available prior to the IMO’s 1 January 2020 deadline include ports in Antwerp, Rotterdam, Genoa and Marseilles in Europe, along with Singapore, Laem Chabang in Thailand and Hong Kong. The additional locations, including North America, and products to be introduced will be announced later during 2018. ExxonMobil has also revealed that its newly developed cylinder and engine oils, as well as services will complement ExxonMobil’s fuel offer. Meanwhile, energy major Shell said that its version of low-sulfur fuel oil will be available at 12 major ports globally.

Started New Unit at Antwerp Refinery to Produce High-Value Transportation Fuels: XOM has commenced operations of a new unit at its Antwerp refinery in Belgium for the conversion of heavy, higher-sulfur residual oils into high-value transportation fuels such as marine gasoil and diesel. The new unit has a capacity of 50,000 barrel-per-day. This unit will expand the refinery’s capacity to meet demand for cleaner transportation fuels throughout northwest Europe. The company’s investment in the new coker will also help to meet projected demand for lower-sulfur fuel oil to comply with new standards to be implemented by the International Maritime Organization in 2020. Moreover, the delayed coker is the first of several expansion projects designed to strengthen the competitiveness of XOM’s advantaged facilities in Europe. The company is currently constructing a new hydrocracker in Rotterdam which is expected to upgrade heavier hydrocarbon byproducts into cleaner, higher-value finished products such as EHCTM Group II base stocks and ultra-low sulfur diesel.

Investment of £500m in major UK fuel refinery: 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 of 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 Exxon Mobil 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, which 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 this has 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 by 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. 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.

Won Additional Acreage in Brazil’s 5th Pre-Salt Bid Round: XOM has expanded its holdings in Brazil’s pre-salt basins after winning the Titã exploration block with co-venturer Qatar Petroleum during Brazil’s 5th pre-salt bid round. The company after winning the block will add more than 71,500 net acres to the ExxonMobil portfolio, which has expanded the company’s total position in the country to approximately 2.3 million net acres. Equity interest in the block will be 64 percent for XOM and 36 percent for Qatar Petroleum. XOM will be the operator of the block. Further, through the remainder of 2018 and into 2019, XOM will continue to get 3-D seismic coverage, as well as continues to progress work on regulatory requirements for exploration drilling by 2020.


Second Quarter 2018 Financial Highlights (Source: Company Reports)

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.

Forecast for the third quarter 2018: The third-quarter sales are expected to be of the order of around $72 billion to about $75.68 billion for XOM, which would compare with sales of $66.17 billion a year ago. An adjusted profit of $1.20 - $1.22 a share has been projected through consensus. This is comparable with adjusted earnings of 93 cents a share in the third quarter of 2017. GAAP earnings may be around $1.24 a share. The company will report its earnings for Q3 2018 on 2 November 2018. XOM has now declared a cash dividend of 82 cents per share on the common stock for the fourth quarter 2018, which will be payable on December 10, 2018 to shareholders of record of common stock at the close of business on November 13, 2018. This fourth quarter dividend announced is at the same level as the dividend paid in the third quarter of 2018.

Outlook (Source: Company Reports)

Stock Recommendation: Higher oil prices prevailing most of the year is expected to expand the third-quarter’s bottom line. XOM stock is trading at $79.68, and has support at $76.50 level and resistance at $86.60. We expect XOM to post better results after a weak 2Q18 due to elevated maintenance activity. Further, the prevailing low levels of the stock do project an investment opportunity given XOM’s leading position in the energy industry and diversity of its asset base; stable cash position; and above 6% average annual dividend hike given over the last 35 years. XOM expects that its upgrading downstream portfolio can contribute about two times more earnings than 2017 level for 2025; and this along with prolific upstream assets brings a healthy long term investment scenario. With dividend above 4% and a  forward P/E multiple below 20x, the investors can benefit from the income stock even if XOM maintains the third quarter earnings under decent radar while better production, and/or pricing will be helpful. With an upside potential around medium to high single digit growth (%) in stock price for next 1-2 years in view of cyclical nature of oil industry, we have  a “Buy” recommendation on XOM at the current price of 79.68, ahead of its Q3 2018 earnings result due on 2 November 2018.
 

XOM Daily Chart (Source: Thomson Reuters)

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