Exxon output rebounds a little late

Exxon output rebounds a little late

As oil prices turn less certain again is Exxon too late to the production party?

Supermajor earnings

The Big Oil earnings season is in full swing, and so far, ‘supermajor’ producers are confounding fears of deep impact from last year’s price volatility. Earnings news is helping MSCI’s broadest oil and gas index extend its rise this month to 8%. After the global No.2 by market value, Shell, released an update showing profits at a four-year high, Exxon Mobil also tied up 2018 with its own profit beat, as did U.S. rival Chevron. This paves the way for another solid set of industry results next week from BP. The British group’s recent reiteration of spending plans, after oil prices slumped, is either reckless, or more likely, a sign that by its calculations, projected capex remains benign. As for Exxon, it said it was securing higher average crude oil prices hand in hand with rising production.

Exxon the laggard

Unlike comparable oil giants, Exxon notably lagged the industry’s efforts to ramp production to capitalise on recovering oil prices that eventually topped out near $87 a barrel in October. As such, Exxon shares overshot the New York Stock Exchange oil index’s 18% fall last year with a 23% tumble. Exxon’s net income actually fell at the end of the year, but the $1.41 per share it reported was well above $1.08 expected. It’s looking towards a major exploration and production reorganisation to address weak output. Permian Basin production ramped by 90%. Part of the cheer that saw its stock up as much as 4% on Friday is based on the group appearing to get a handle on right-sized production. If so, its stable dividend could actually start growing again. Pay-out growth dwindled to just 3% in 2017 compared to an expansion of as much as 21% in 2012.

Unprofitably late?

But as the price outlook turns less certain again is Exxon too late to the party? Booming production only makes sense when prices are similarly buoyant. As it is, Permian production costs are facing higher, meaning that any continued weakness in crude prices could become a problem. To be sure, OPEC-plus’s 1.2 million production reversal last year, sanctions on Iran, Saudi Arabia’s commitment to reduce output beyond its quota and even Venezuela turmoil should at least underpin oil prices. But, as seen over the last few months that’s no guarantee that prices will be stable. In turn, even as cost management excels, Exxon, may struggle to raise pay outs to shareholders, keeping its shares in the shade relative to rivals.

Figure 1 -  Supermajor dividend yields last fiscal year

Source: Refinitiv/City Index