The Big Daddy in the integrated oil space — ExxonMobil Corporation (XOM) — posted outstanding second-quarter earnings of $1.60 per share, compared with the Zacks Consensus Estimate of $1.46 and year-earlier earnings of 84 cents.
These positive comparisons were driven by higher oil price realizations, improved downstream margins and solid chemical contributions.
Total revenue in the quarter increased more than 24% year over year to $92.5 billion, compared with the Zacks Consensus Estimate of $100 billion. Importantly, the oil giant has returned $3 billion to shareholders as dividends and share buybacks.
A substantial improvement in oil prices have helped the integrateds. ConocoPhillips (COP) also posted impressive results yesterday. These have set the stage for Chevron Corporation (CVX), which is scheduled to report its second-quarter results tomorrow.
The Gulf of Mexico incident has had little impact on the company’s results as only a small portion of Exxon’s income is from the region.
The improved production and increased oil price realizations caused an 85% hike in earnings from the year-earlier quarter to reach $7.56 billion. Upstream earnings were up nearly 40% year over year to $5.34 billion.
The production of oil and natural gas averaged 4 million oil-equivalent barrels per day (58% oil), up 8.4% year over year. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production was up about 10%. Exxon’s refinery throughput averaged 5.19 million barrels per day, down nearly 2% from the year-earlier level.
Total refined product sales of 6.24 million barrels per day were down 3.8% year over year. Total product sales in the Chemicals business segment increased 3.7% year over year to $6.5 billion.
Total Downstream earnings in the quarter were $1.22 billion, including $440 million from domestic operations. Chemical earnings were $1.37 billion, significantly higher than the year-earlier earnings.
Cash flow from operations and asset sales totaled $9.6 billion in the reported quarter. Capital expenditures totaled $6.5 billion during the quarter, down 1% year over year.
Given Exxon’s significant share (more than three fourths of second-quarter earnings) in the upstream business, we believe that it will retain its leverage to higher oil prices going forward.
As the Exxon-XTO Energy merger was completed on June 25, 2010, the second quarter results include only minimum operations from the merged company. However, from the third quarter onward, Exxon’s percentage of overall production coming from U.S. natural gas will increase, which is our main concern in the still-tentative natural gas environment. Consequently, we maintain our long-term recommendation for the stock at Neutral.