Exxon-Mobil: A Deeper Look at Second Quarter Earnings

This morning the world’s largest company by measure of market cap, Exxon-Mobil (NYSE:XOM) reported its earnings for the second fiscal quarter. Per-share profit was $0.16 lower than the $2.34 a share forecast by analyst consensus estimates. Net income rose 41 percent to $10.68 billion, or $2.18 a share, from $7.56 billion, or $1.60, a year earlier. The earnings miss was due to shortfalls in offshore refining earnings and production growth that did not meet expectations, according to analysts.

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Exxon’s (NYSE:XOM) non-US refining earnings dropped 20% from 2010 to a total of just over $600 million this year. The real kicker for the global oil (NYSE:USO) company was slower than expected growth in oil and natural gas output. Analysts had expected a growth rate of 12%, but Exxon under-delivered, tallying growth of 10%, or 4.4 million barrels per day, in oil and natural gas. Experts say the company’s recent acquisition of XTO Energy played a rule in the malperformance as Exxon was forced to rely on its subsidiary in major North America operations. Among the regions with the steepest production shortfalls, the company’s gas production in Europe declined 18% year-over-year.

Analyst Brian Youngberg, who has a hold rating on the company said of its latest quarter, “The earnings improvement is not as strong as some of its peers, relative to last year. Part of that is attributable to the XTO acquisition, which increases Exxon’s reliance on North American natural-gas prices, which have remained weak compared to oil.”

Lower gasoline (NYSE:UGA) prices were also a weight on oil company balance sheets in the latest quarter. Exxon’s FQ2 net income was up by $0.04 from the first quarter, compared to oil prices that jumped 8.2%. Natural gas prices rose by 4.3% in the quarter as well. Going forward the company has already initiated plans to drill in new fields utilizing revolutionary technologies such as hydraulic fracking, Bloomberg reports. “Chief Executive Officer Rex Tillerson has orchestrated $38 billion in acquisitions since June 2010 to amass gas fields and the expertise to exploit them. Exxon plans to purchase more gas reserves and is assessing targets in more than a dozen gas-rich shale-rock formations worldwide, Jack Williams, president of Exxon’s XTO Energy unit, said in a July 20 interview. Exxon paid $34.9 billion to acquire XTO last year.”

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Specifically the company has set its sights on oil wells in the Gulf of Mexico, and one big fish known as “Hadrian” thought to hold over 700 billion barrels of crude, which could increase once drilling begins.