Exxon Mobil (XOM, Financial) has signaled a potentially subdued earnings season for the oil and gas sector, as revealed in a recent SEC filing. The company anticipates a significant drop in its Q1 GAAP operating earnings to about $6.7 billion, down from $7.6 billion in the previous quarter. This decline is attributed to weaker crude oil and natural gas prices, alongside negative effects from unsettled derivatives.
Key points from the update include:
- A potential reduction of up to $1.0 billion in earnings from the upstream segment, primarily due to softer crude oil and natural gas prices. Notably, natural gas prices have plummeted by over 50% from the end of October to March's end.
- The downturn contrasts sharply with the surge in commodity prices seen in 2022, following Russia's invasion of Ukraine, which propelled natural gas prices to multi-year highs and crude oil prices to nearly $120/barrel in May 2022.
- Despite the recent price dips, Exxon Mobil achieved record earnings in 2022 and Q1 2023, hitting all-time stock highs by September 2023. This financial strength supported its massive $60 billion acquisition of Pioneer Natural Resources (PXD, Financial) in October.
- Even with rising interest rates and economic growth concerns, Exxon Mobil did not cut back on production. In FY23, the company increased its production by 111,000 oil-equivalent barrels per day, with significant growth in the Permian and Guyana regions.
- Improved production volumes and a better mix, particularly from Permian and Guyana, boosted Q4 adjusted earnings by $127 million to $6.3 billion, despite lower crude realizations.
- Strong production and healthier refining margins, expected to enhance earnings by $500-$700 million in Q1, have helped Exxon Mobil counterbalance the effects of lower commodity prices.
These developments, coupled with a recent uptick in crude oil prices reaching year-to-date highs, explain why Exxon Mobil's stock remains stable despite the forecasted dip in Q1 earnings compared to Q4.
