Analyzing Exxon Mobil (XOM)

By Yaser Anwar, CSC of Equity Investment Ideas

• Earnings, excluding onetime, non-operating items, were $9.8 billion, EPS of $1.69 per share, well above EPS estimates of The Street, which were $1.5-1.53. Results were stronger than expected in all major business segments (E&P and R&M exceeded expectations due to stronger than expected prices and refining margins. Chemicals results also exceeded projections).
• The most upside was primarily due to higher than expected corporate and financing earnings, $518 million, reflecting favorable tax items and higher interest income.

Earnings Composition (all higher than expected)-

1) Exploration and Production results were $6.22 billion.

2) Refining and marketing earnings were $1.96 billion.

3) Chemical earnings were $1.2 billion.

• I was also glad XOM repurchased $8.4 billion in equity while paying dividends of $1.9 billion during Q4 2006. Exxon paid a total of $32.6 billion to shareholders through dividends/share repurchases during 2006. Even then, XOM’s cash is $32 billion (talk about minting money!)
• XOM’s diversified, earnings stability and strong business trends in volatile, cyclical and capital intensive segments of the energy industry make it a goto stock for institutional investor.
• When you’re looking at Oil companies, one important metric to keep in mind is price realization for Oil, NG & Exploration expenses. Exxon’s average oil price realization was $55.59/bbl, up $2.70/bbl from previous year. The gas price realization was $7.30/mcf, $0.46/mcf below last year. Exploration expense was $379 million, $47 million above a year ago.
• US Production volumes were in line, but oil price realizations were lower than expected. Volume of international crude oil was flat in relation to prior period with increases in Europe, Canada, Africa and Russia offsetting decreases in Asia Pacific/Middle East and Other.
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• Production of international natural gas rose by 17% in relation to Q3 2006 primarily due to volumes in Europe more than offsetting declines in Asia and Canada. Worldwide oil and gas production fell 0.9% from a year ago, to 4.23 million boe/d, reflecting lower natural gas volumes in Europe due to unseasonably warm weather, unscheduled downtime in Alaska and Africa, and PSC effects.
• The E&P segment is set to deliver strong production growth during 2007-2008, with output set to rise by 2-3% annually during the period. XOM is the largest refiner and marketer in the world and should continue to see robust profits from this business segment. The Chemicals business is high quality, typically delivering the higher returns on a global basis.
• According to the wicked Stock Pickr some of the top funds own XOM- Citadel, US Global Investors, Legg Mason, Goldman Sachs, Harvard, Yale and many more. So what are you waiting for? Still plenty of time to own a piece of the best in business

According to Goldman Sachs

Exxon Mobil continues to execute exceptionally well in just about all facets of its business. The company’s strong performance is in sharp contrast to almost all of its so called super major peers. Perhaps the only outstanding question is whether the company will be able to continue to deliver in excess of 100% production replacement, as it has for just about every year since 1994.

Exxon is expected to announce year-end 2006 reserves in the near future. In our view, Exxon Mobil’s substantial E&P project portfolio we think minimizes downside risk in the event year-end proved reserve accounting does not get the company to the 100% hurdle.

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