Exxon Profits Fall Short of Estimates Despite Production Boost

Lower Refining Margins and Gas Prices Drag Down Q2 Earnings

by Victor Adetimilehin

Exxon Mobil Corp. (XOM) lowered profit expectations for the second quarter of 2024, citing lower refining margins and natural gas prices. The company expects earnings per share to be between $1.50 and $2.40, or about $8.3 billion, which is 17% below market consensus. This shortfall comes despite a significant production boost from the recent acquisition of Pioneer Natural Resources.

Exxon-Pioneer Merger Impact Analyzed

The profit preview excludes the additional oil and gas production from Exxon’s $60 billion acquisition of Pioneer Natural Resources, which closed in May 2024. However, Exxon did offer some insights into how the merger will affect future results. The company expects capital spending to run at an annualized basis of about $4.8 billion and anticipates Pioneer to add between 500,000 and 550,000 barrels of oil equivalent per day (boepd) to its second-quarter production compared to the first quarter. The full financial results, which will include the complete impact of the merger, are due on August 2nd, 2024.

Exxon’s core oil and gas business, despite lower natural gas prices, is expected to see a profit increase from $4.6 billion in the second quarter of 2023 to about $6.2 billion in Q2 2024, thanks to higher oil prices. However, this positive outlook is tempered by lower refining margins, which are expected to negatively impact profits by $1.1 billion to $1.5 billion compared to the previous quarter. Refining margins reflect the difference between the cost of crude oil and the selling price of refined products like gasoline and diesel. When margins are low, it means the profit earned from refining is smaller.

Production Growth and Shareholder Rewards

Following the Pioneer acquisition, Exxon has more than doubled its daily production capacity to 1.3 million boepd. The full effects of the merger, including cost synergies and operational efficiencies, are expected to be reflected in the third-quarter results. The company has ambitious plans to triple Permian production to 2 million boepd by 2027 through innovative drilling techniques that extract more oil and gas from the rocks.

Exxon also boasts record oil production in Guyana, reaching a daily high of 663,000 boepd in May 2024, exceeding initial planned capacity by 100,000 boepd. This success story in Guyana partially offsets the headwinds from lower refining margins. Despite the profit shortfall announcement, Exxon shares dipped slightly but remain up over 13% year-to-date. The company has announced a $20 billion share buyback program following the acquisition’s closure, signaling confidence in its future cash flow generation.

Exxon’s second-quarter profit warning highlights the challenges facing the oil and gas industry. While oil prices have risen in 2024, volatile market conditions and fluctuating refining margins can significantly impact profitability. The company’s aggressive production expansion plans and focus on technological advancements indicate a long-term commitment to the oil and gas sector. However, how Exxon navigates the short-term headwinds and integrates the Pioneer acquisition will be crucial for investor confidence in the coming quarters.

Source: Reuters

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