ExxonMobil (XOM, Financial) reported strong numbers for the third quarter that came above the street expectations. This was mainly driven by a strong performance in its refining business. In spite of these numbers the stock is behaving like any other oil company and has tanked to its 52-week low. The company may have sound fundamentals but the bigger question is whether it will be backed by macro economic factors. Let us see in detail how Exxon performed during the quarter and what are its future prospects.
The way ahead
These are crucial times for the oil industry as the crude prices continue to decline. Recently OPEC curtailed its estimates on the amount of crude it need to produce in 2015. It anticipates the production to hit a twelve year low to 28.9 million barrels a day from its previous forecast of 30 million barrels a day. Falling crude price is an evil in disguise, since it may sound promising initially but as the fall continues it affects the entire economy.
According to an article in USA TODAY “The steep decline in crude price raises fears that small exploration and production companies could go out of business if the prices fall too low. And that, in turn, could cause turmoil among those who are lending to them: Junk-bond purchasers and smaller banks.” This is a perfect co-relation, which reflects how one factor disturbs the macroeconomic harmony.
But it is encouraging that, in spite of these headwinds Exxon continued its robust performance. In fact falling crude benefitted the company, as cheap oil prices strengthened its position. Consequently its profit jumped 73% during the quarter. Continuing with its growth initiatives the company started three new projects few months back, two of which has reached full capacity. In Indonesia its Banyu Urip project started adding another 10,000 barrels per day and the total production has reached 40,000 barrels per day.
On the other hand, in the Gulf of Mexico commissioning activities for both the Hadrian South and Lucius developments are progressing well. The management expects both these projects to start before year-end. Apart from this, its operations in Malaysia, Qatar, Canada and other areas are moving as per schedule and the company seems to be well on track to deliver year over year growth.
While expanding its horizons, Exxon has also taken into account the cost factor and is taking necessary steps to reduce the unwanted expenses.
Conclusion
Measures such as this, has enabled the company to improve its unit profitability from $18 per barrel in 2013 to more than $21 a barrel year-to-date. Going forward, the company is even more optimistic about its performance in the days ahead. As far as the stock is concerned it continues to bear the ill effects of falling crude. However, Exxon would be a good bet once the macro economic factors stabilize and the crude heads to its former glory.