Will ExxonMobil's (XOM) Upstream Business Hurt Q3 Earnings?

Zacks Equity Research
·4-min read

Exxon Mobil Corporation XOM is geared up to release third-quarter 2020 results on Oct 30, before the opening bell. Since the integrated energy player has significant exposure to upstream business, the company is likely have borne the brunt of the year-over-year drop in commodity prices in the September quarter.

Upstream Business

ExxonMobil’s upstream businesses fall under core operations. This segment reflects the company’s activities related to exploring, and developing of oil and natural gas resources. Notably, from upstream operations, within and outside the United Sates, the energy giant reported a loss of $1.1 billion in the first half of 2020.

Upstream Performance in Q2

Non-U.S. Operation: During second-quarter 2020, ExxonMobil reported a loss of $454 million from upstream activities outside the United States. This marked deterioration from the year-earlier profit of $2.9 billion owing to lower commodity prices and volumes.

U.S Operation: From domestic operations, ExxonMobil reported a loss of $1.2 billion against the year-ago quarter’s profit of $335 million. Lower prices hurt domestic operations.

Q3 Oil Price

Although the pricing scenario of crude was grimmer in the September quarter as compared to the year-ago comparable period, the commodity’s price has recovered sequentially in the third quarter. The partial recovery was backed by the easing of lockdown measures put in place to combat the coronavirus pandemic.

Thus, the dip in crude prices is likely to have hurt ExxonMobil’s upstream operations in the third quarter, in both international and domestic markets.

Forecast for Q3 Oil & Gas Production

The Zacks Consensus Estimate for third-quarter production is pegged at 3,794 thousand barrels of oil equivalent per day (MBoE/D), suggesting a decline from the year-ago quarter’s 3,899 MBoE/D.

Production of Crude & Natural Gas Liquids: The consensus estimate for world-wide net crude oil and liquids production is pegged at 2,376 thousand barrels per day (MBbl/D), indicating a decline from 2,392 MBbl/D in the year-ago quarter.

Natural Gas Production: The Zacks Consensus Estimate for world-wide natural gas production available for sale is pegged at 8,514 million cubic feet per day (Mcf/d), implying a decline from 9,045 Mcf/d in third-quarter 2019.

Upstream Profit to Deteriorate in Q3

Prices and production of commodities are the two key parameters that determine the fate of upstream operations. With oil equivalent production likely to have deteriorated and oil pricing scenario bleak as compared to the year-ago quarter, the Zacks Rank #4 (Sell) company’s earnings from upstream businesses are likely to have declined.

Non-U.S. Operation: The Zacks Consensus Estimate for earnings after taxes from non-U.S. upstream operations is pinned at $313 million, suggesting a decline from $2,131 million reported in the year-ago quarter.

U.S. Operation: The Zacks Consensus Estimate for after-tax loss from upstream operations in the domestic region is pegged at $547 million, indicating deterioration from profit of $37 million in the year-ago quarter.

Exxon Mobil Corporation Price and EPS Surprise

Exxon Mobil Corporation Price and EPS Surprise
Exxon Mobil Corporation Price and EPS Surprise

Exxon Mobil Corporation price-eps-surprise | Exxon Mobil Corporation Quote

Earnings & Revenue Projections

The weak upstream business is likely to have hurt the company’s results in the September quarter of 2020. Notably, the Zacks Consensus Estimate for third-quarter loss of 28 cents per share suggests a decline of 141.2% year over year. Moreover, the Zacks Consensus Estimate for sales of $49.5 billion indicates a 23.9% year-over-year decrease.

Upcoming Releases of Other Energy Players

Other big energy giants, with significant upstream exposure, that are gearing up to release quarterly results are TOTAL S.A. TOT, Chevron CVX and EOG Resources, Inc EOG. While TOTAL and Chevron are both set to report third-quarter earnings on Oct 30, EOG Resources is scheduled to report on Nov 5.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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