By Sabrina Valle
HOUSTON (Reuters) – Exxon Mobil Corp missed analysts’ expectations on Friday with a 28% year-on-year drop in first-quarter profit as weaker refining margins and lower prices offset volume gains.
Latest results from oil and gas companies including Chevron (NYSE:) and TotalEnergies (EPA:) reflect a sharp decline in natural gas prices after a warmer-than-usual winter in the Northern Hemisphere reduced demand and boosted inventories.
Exxon (NYSE:), which is in the process of closing a $60 billion deal for the world’s largest shale oil producer Natural resources pioneer (NYSE:), posted lower first-quarter earnings of $8.22 billion, compared to net income of $11.43 billion a year ago.
The stock fell 1.8% to $119.25 in pre-market trading after reporting earnings per share of $2.06, 6% below the Wall Street analyst consensus of $2.20 per share, it showed estimates from the LSEG.
Oil and gas production profits fell 14% due to lower natural gas prices, and refining fell 67% due to weaker fuel margins, mark-to-market derivatives and higher maintenance costs. However, its chemicals business was a highlight, with profits more than doubling thanks to lower input costs and higher margins, the company said.
Profit of $8.22 billion for the first quarter ended March 31 was 29% lower than adjusted profit of $11.62 billion a year earlier.
But the results were the second highest for a first quarter in the past decade, behind the same period a year ago, Chief Financial Officer Kathryn Mikells said. The miss was partly due to tax and inventory balance adjustments, she said.
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“Every quarter we have a number of positives and negatives related to these one-time items,” she said. “Sometimes they are favorable, this time they were unfavorable.”
Global oil prices were largely flat from a year ago, while the company received a price for its natural gas that was 32% less than a year ago, the company said.
Oil and gas results were boosted by lower costs and higher volumes at Exxon’s operations in Guyana, where the latest production vessel reached full production earlier than expected. Hess (NYSE:), one of Exxon’s partners in the South American country, previously marked the increase with a 70% year-over-year production gain.
“Oil volumes exceeded street production, driven by rising production in Guyana, where gross production reached a record 600,000 barrels per day,” said Peter McNalley, analyst at Third Bridge.
Exxon’s capital expenditures last quarter were the lowest in seven quarters and the streamlining of operations expanded what it calls structural cost savings by $400 million.
It added $1.7 billion in cash last quarter to end the period with $33.3 billion.
MAKE A DEAL
Exxon’s acquisition of Pioneer is expected to close in the coming weeks. Exxon has started the integration process with a team working separately from the company, Mikells said.
“We feel very good about our interactions with the people at Pioneer and are committed to putting our best foot forward as we complete this transaction,” she said.
The all-stock deal for Pioneer would make Exxon the largest oil and gas producer in the largest U.S. shale field, doubling production there to more than 1.3 million barrels of oil equivalent per day. Exxon predicts the combination will allow it to reach 2 million barrels per day by 2027.
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That deal was the largest in a series of blockbuster combinations in recent years, as wildcatters like Pioneer, Endeavor Energy and CrownRock were acquired by larger companies seeking to lock in years of future production and gain economies of scale through expanded operations.
Pioneer shares traded at $275 each this week, up 9% from the October deal value.
HESS ARBITRATION
Exxon is in a dispute with Chevron and Hess over assets in Guyana, home to the biggest oil discoveries of the past two decades. In light of Chevron’s $53 billion bid for Hess, Exxon has claimed the right of first refusal on Hess’ assets in Guyana. That claim is being investigated by an international arbitration panel.
Hess’s 30% stake in the Guyana joint venture is the prize in the proposed acquisition of Chevron.
Mikells said Exxon and partner CNOOC (NYSE:) Ltd will “evaluate our options” if the arbitration panel agrees to be the first to deny a sale.
“It’s all about clarifying our contractual rights, period,” she said.
