Exxon Mobil might have expected
a hearty pat on the back after
Friday’s earnings announcement.
It didn’t get one from
investors.
By many measures, the company’s
results look stronger than
they have in awhile with oil prices
at levels not seen since 2018. Exxon
Mobil posted $4.7 billion in quarterly
profit, its strongest in at least
a year and beating Visible Alpha’s
analyst consensus by more than
10%. Its $9.7 billion of cash flow
from operations was the highest it
has been in almost three years and
sufficient to cover dividends, capital
investments and debt reduction.
The numbers look especially flattering
compared with the same period
last year, when the world faced an
unprecedented glut of crude.
Not all segments posted record
results, but the quarter underscored
the advantage of an integrated energy
business. Downstream earnings
were weak because of a slow
recovery in jet-fuel demand even as
Exxon’s chemicals segment posted
its best-ever quarter. Chemicals
have been Exxon’s saving grace
since last year when demand for
packaging and hygiene products
spiked. Demand from the automotive
industry, which is itself recovering
from its own supply crunch, is
improving, too.
But Exxon has less flexibility
than peers because of a brutal 2020
and years of overspending. It is
committed to keeping a lid on its
capital expenditures. Debt levels
have come down from the records
reached last year, but it will take
some time to contemplate splashier
cash returns. That could become a
sore point: This week, European
majors Royal Dutch Shell and TotalEnergies
and U.S. peer Chevron
all announced a return to share
buybacks.
Questions also remain over how
Exxon plans to allocate long-term
capital going forward, especially
with a new board makeup after activist
investor Engine No. 1 won
three seats in May. Chief Executive
Darren Woods said Friday that the
company has had “productive discussions”
with the new board.
While the company stressed the
need to address the energy transition,
it didn’t lay out any more substantive
details beyond previously
announced plans to invest in carbon
capture, hydrogen and biofuels.
Much of that uncertainty seems
baked into Exxon’s share price; it
has shaved off about a quarter of
its market capitalization since the
last time oil prices were this high,
and the stock fell a further 2.3%
Friday. At 13 times forward-12-
month earnings, Exxon share prices
remain a bargain compared with its
10-year average. For investors running
out of reasons to bet on hydrocarbons,
that could be one compelling
reason to get in.