Exxon Mobile’s Shade of Green is what investors want

There is nothing like flashing something green to excite energy investors these days, as long as it is the color of cold, hard cash.

Exxon Mobile‘s

XOM -2.24%

first quarter was something of a mixed case. The company had a quarterly net profit of $ 5.5 billion in the first quarter, well below the $ 9.5 billion that analysts surveyed by Visible Alpha had pulled in. accounted for less than 2% of production last year), but even without that impact, earnings would have been around $ 700 million below expectations.

Although inflation has affected everyone in the oil fields, Exxon CEO Darren Woods said in an earnings call on Friday that the impact has been manageable because the company extended a lot of contracts during the pandemic when the cost of oil field services was under pressure.

Brent oil prices averaged $ 22 higher per barrel. barrel compared to the previous quarter, but it was not enough to mitigate lower production volumes as Exxon chalked up to severe weather in Alberta and maintenance activity.

The biggest disappointment, however, was Exxon’s downstream activities, which yielded 62% less profit than analysts had expected. The downturn was mainly related to time impacts related to the company’s hedges, which are used to manage price risks.

However, any disappointment from the overwhelming profit in the last quarter seems to have been washed away by Exxon’s exuberant announcement of buybacks: Its share price fell by around 1% after the earnings call on Friday. Although Exxon has not increased its dividend yet, it said it would triple its share buyback program to $ 30 billion by 2023, or about $ 15 billion a year. It beats the Chevron,

which promised to repurchase as much as $ 10 billion a year. On an annual basis, it takes Exxon’s generosity to buybacks back to levels last seen in 2013.

Although there is plenty to choose from in Exxon’s results, the company should be better positioned than competitors in an environment with high commodity prices. Exxon has by far the highest refining footprint among super major peers (more than twice as much as Shell,

the second largest) and the largest presence in the Permian Basin, two areas that have the potential to increase profits going forward.

Refining margins are skyrocketing due to low inventory levels for refined products globally, and demand for products – such as aviation fuel and gasoline – is recovering, according to Devin McDermott, stock analyst at Morgan Stanley.

Margins are likely to remain strong in the future, especially if the world continues to avoid importing refined products from Russia.

Exxon said derivatives-related losses in the refining segment should reverse in the coming quarters. Meanwhile, a period of strong commodity prices could mean that investors turn their attention to the life of the companies’ oil portfolio, which measures long-term production potential, as Biraj Borkhataria, an equity analyst at RBC Capital Markets, noted in a recent report. Mr. Borkhataria says that Exxon is doing well on this metric due to its large position in Perm and some major discoveries in Guyana.

Despite the incredible rise in Exxon’s share price, which has now risen around 40% year to date, Exxon’s corporate value as a multiple of expected earnings before interest, tax, depreciation and amortization is still below Chevron’s, a reversal of historical trends. As long as investors keep their eyes glued to the kind of greens that Exxon is good at delivering, the stock may still have some room to run.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

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Appeared in print on April 30, 2022 as “The Shade of Green Energy Investors Want”.

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