Exxon Mobil Corp. (XOM, Financial) announced its earnings for the fourth quarter and full-year 2023 on Feb. 2.
Ranked 15th in the S&P 500, the company is considered one of the most powerful oil supermajors with solid dividends increasing annually, thereby being considered a dividend aristocrat.
It operates in three distinct segments: upstream (oil and gas production), downstream and chemicals with specialty products. The upstream segment generated 54.70% of the total earnings of the company in the fourth quarter.
Results snapshot
Exxon Mobil reported adjusted earnings of $2.48 per share for the quarter, which was higher than analysts' predictions but lower than last year's $3.40 per share. However, the company's total revenue of $84.34 billion fell short of expectations. They were significantly lower than the $95.42 billion recorded in the same quarter of the previous year.
Most importantly for shareholders, Exxon Mobil declared a dividend of 95 cents per share, which is payable on March 11 to shareholders at the close of business on Feb. 14.
The positive earnings surprise came from higher liquid production than expected, partially neutralized by lower crude and natural gas prices.
The total oil equivalent production reached 3,824,000 Boepd in the fourth quarter compared to 3,822,000 Boepd in the prior-year period, with an output of 1,228,000 Boepd in the U.S.
Source: Exxon's earnings presentation
2023 was a good year regarding revenue and earnings, even if the company's sales dropped by 16.80% year over year with earnings of $36.01 billion as compared to $55.74 billion in 2022, as shown in the chart below:
The company managed to buyback shares to the tune of $17.5 billion in 2023, with outstanding shares diluted of 4.01 billion.
Acquisition of Pioneer Natural Resources
ExxonMobil announced on Oct. 11, 2023 that it was acquiring Pioneer Natural Resources (PXD, Financial) in an all-stock transaction valued at $64.5 billion. Investors will receive 2.2324 Exxon shares for each Pioneer share. The proposed merger is now expected to be completed in the second quarter of 2024, following shareholder approval on Feb. 2.
It is a significant move for ExxonMobil, which will increase its presence in the Permian Basin (Delaware and Midland basins) and significantly strengthen the company's upstream division. Take a look at the image below from the October 2023 presentation.
The company stated that by 2027, upstream total production will exceed 5 million boepd, with U.S. production representing about 45% of the total upstream volume.
The central question is whether ExxonMobil paid excessively for Pioneer.
Even though it is still early in the process, I believe the price is too high to make any business sense in this tough year for oil.
However, Exxon's super-premium payment may have been the only way for those two solid entities to agree to merge. As a result, shareholders must accept the price premium as a significant entry fee in exchange for a future favorable transaction and pay the price. What makes good business sense may not always benefit shareholders.
Stock performance
Exxon and Chevron (CVX, Financial) have struggled since November 2023, which is not surprising. Both companies have decided to pursue acquisitions, and this path results in a loss for shareholders, regardless of how justified or beneficial the transaction may be. The chart below shows Exxon's acquisition of Pioneer and Chevron's acquisition of Hess (HES, Financial) resulted in a significant drop when compared to Shell (SHEL, Financial), for example.
What happened this quarter?
As mentioned previously, Exxon Mobil had decent fourth-quarter results, which beat analysts' expectations.
Revenue and other incomes came in at $84.344 billion, with $7.63 billion in net income. Earnings were better than expected due to higher liquid production, even if oil and gas prices realized were significantly lower than last year.
The company's operations in the United States recorded a profit of $1.57 billion, while non-U.S. operations registered a profit of $4.69 billion. Despite the lower earnings compared to the last quarter of 2022, the upstream segment still surpassed expectations with adjusted quarterly earnings of $6.26 billion.
This solid performance was due to higher volumes with an improved oil-to-natural gas ratio, primarily from the Stabroek block in Guyana and the Permian Basin growth, along with stronger gas realizations. However, lower crude realizations, adverse tax impacts and year-end inventory effects partially offset these gains.
Overall, the company's strategic focus on operational efficiency and strong performance in non-U.S. markets have allowed it to maintain a strong financial position. This performance is a testament to the company's strength and resilience in the face of challenging market conditions, and it gives investors continued confidence in its future growth and success.
Exxon Mobil's total production averaged 3,824,000 thousand barrels of oil equivalent per day (K Boepd), slightly higher than the 3,822,000 Boepd reported the previous year.
Liquid production increased to 2,550,000 Bopd from 2,461,000 Bopd in the prior-year quarter. The better results came from higher production, primarily in the United States, Canada and Africa. Yet, natural gas production totaled 7,645 million cubic feet per day, down from 8,167 Mmcfpd realized a year ago. This was primarily due to lower output from the U.S>\., Europe, Asia and Australia. Production in the U.S. was 1,228,000 Boepd with 69.3% liquids.
The production split by region is shown below, with liquids and natural gas represented. Guyana production is indicated in Canada and other Americas. We can see the region's production is approaching U.S. production and could surpass it in a few years, with Guyana continuously increasing its production.
Exxon Mobil reported a crude price realization of $76.64 per barrel in the United States, significantly lower than the year-ago quarter's number of $82.14. It was not a surprise as the market was expecting the drop.
Finally, ExxonMobil anticipates decreased volumes in its Upstream segment in the first quarter of 2024. Furthermore, corporate and financial expenditures are estimated to total $300 million to $500 million. However, the completion of the Pioneer Natural Resources acquisition will be the focal point of the conversation.
The Downstream segment made earnings of $3.21 billion, a decrease from $4.07 billion the previous year. This was primarily due to lower industry refining margins, higher seasonal costs and lower volumes as a result of increased scheduled maintenance and divestitures.
The Chemical business generated a profit of $189 million in the latest quarter, which is lower than the $250 million profit made at the same time last year. However, the segment's profitability rose due to lower feed prices in the United States and high sales of performance items. This helped the section overall.
The Specialty Products division, on the other hand, recorded a profit of $650 million, a decrease from the $760 million earned in the same quarter the previous year. Although the business unit's margins increased due to better realizations and reduced feed costs, they were somewhat offset by higher seasonal expenses and decreased sales volume.
As for free cash flow (not including divestitures), the company posted $7.45 billion for the quarter.
Capital expenditures were $6.23 billion (excluding net investments and advances), the highest since 2019, while cash from operating operations was $13.68 billion, down from $17.62 billion a year ago.
The fourth-quarter free cash flow totaled $7.45 billion. The trailing 12-month free cash flow was $33.45 billion (excluding divestitures). This strong free cash flow in 2023 enabled Exxon to buy back $17.5 billion in shares and pay an excellent quarterly dividend, which is presently 95 cents per share.
Exxon Mobil's net debt is currently $10.03 billion, with a debt-to-capital ratio of 16% and a net-debt-to-capital ratio of 5%, resulting in a period-end cash balance of $31.53 billion.
Technical analysis and commentary
Note that the graphic has been updated to reflect dividends.
Exxon Mobil follows a descending channel pattern, with resistance at $104 and support at $97. The relative strength index is 57 and descending, indicating strong resistance at $104 and a potential downside below $100 if the 50-day moving average secondary support fails to hold.
The stock will continue channeling downward until it can break either the upper or lower trend line.
The short-term trading strategy is to take profits between $103.50 and $105.80, with a possible higher resistance at $110, and accumulate between $100 and $96 with a possible lower support at $94.
I recommend trading short-term LIFO for 50% to 60% of your total position, with a core long-term holding for a much higher target.
It should be noted that to remain relevant, the chart needs to be updated on a regular basis. The chart above has a possible validity of about a week or two. Remember that the chart is only a tool to help you choose the best strategy. The future is promised to no man.
