ExxonMobil, recognized as a leading company in the oil industry, recently provided investors with a preview of its forthcoming third-quarter earnings report, indicating a possible decline in profits. The anticipated decrease is primarily attributed to a 17% drop in oil prices during the period.
Despite the expected downturn in profits for the third quarter, ExxonMobil is projected to once again deliver results that surpass those of its industry peers. This performance is one factor that continues to position it as an attractive oil stock for potential investors.
In the second quarter, ExxonMobil reported outstanding profits, leading the industry with $9.2 billion in earnings. This figure was nearly double that of Chevron and more than triple the profits of other major oil companies including BP and ConocoPhillips. ExxonMobil’s strategic efforts, such as the acquisition of Pioneer Natural Resources, have played a pivotal role in enhancing its earnings capacity. This strong financial performance allowed ExxonMobil to provide substantial cash returns to shareholders, paying $4.3 billion in dividends—the second highest in the S&P 500—and repurchasing $5.2 billion worth of its own shares. The company also maintained a robust balance sheet with a low leverage ratio of 6%.
Moving into the third quarter, ExxonMobil does not anticipate replicating its previous earnings success. The company disclosed in a regulatory filing that its upstream earnings are expected to be $600 million to $1 billion lower than the $7.1 billion achieved in the second quarter, mainly due to the weakened oil prices. Additionally, ExxonMobil projects lower earnings in its refining segment due to reduced refining margins, which could decrease the profitability of its energy products segment by up to $1 billion. This drop is attributed to decreased consumer and industrial demand linked to slowing economic growth in China and the uptake of electric vehicles.
Despite the forecasted reduction in third-quarter profits by as much as $2 billion, ExxonMobil could see a rebound in the fourth quarter. This potential recovery is supported by a recent rally in oil prices, with Brent crude increasing sharply in the early days of the quarter due to geopolitical tensions in the Middle East. Analysts have speculated that oil prices could surge significantly in a worst-case scenario if conflicts escalate.
ExxonMobil is strategically prepared to maintain profitability without relying on high oil prices. The company is focused on expanding its profitable projects in regions like Guyana, the Permian Basin, and Brazil, as well as its liquefied natural gas assets. Its recent $60 billion acquisition of Pioneer Natural Resources aligns with this strategy, enhancing growth in the Permian. Additionally, ExxonMobil is aiming to capitalize on Chevron’s pursuit of Hess to strengthen its position in Guyana. By 2027, the company expects more than 60% of its production to come from high-margin assets, an increase from 43% last year, potentially raising its upstream earnings from $9 billion to $13 billion at $60 Brent oil.
ExxonMobil is also working to elevate its product solutions business by expanding its production capacity from 13.8 million tons per year in 2023 to over 20 million tons annually by 2027. This increase is projected to enhance the earnings capacity of this segment from $1.3 billion to $4.7 billion. Furthermore, ExxonMobil is targeting a reduction in structural costs by $5 billion from last year’s levels by 2027.
While ExxonMobil is anticipated to report lower earnings for the third quarter, its strong starting position and strategic investments suggest a promising outlook for future profitability. The company’s efforts to expand high-margin upstream and product solutions businesses, combined with reductions in structural costs, are poised to augment its future earnings potential, making ExxonMobil a reliable investment in the oil sector.
