After loading up to the gills during the 2020 oil crash, Exxon is slowly but surely emerging from the crisis period (which it survived without slashing its dividend unlike so many of its peers) and moments ago the former world's largest company reported stellar earnings which not only snapped a record streak of losses as rising oil and natural gas prices bolstered one of the biggest dividends in the S&P 500 Index, but beat across the board.
More importantly, Exxon revealed a surge in cash flow as oil prices have rebounded, allowing Exxon to not only comfortably pay its dividend and capex, but also aggressively pay down debt: the key line from CEO Darren Wood.“Cash flow from operating activities during the quarter fully covered the dividend and capital investments.”
Here are the Q1 highlights which as noted, were solid across the board:
- Revenue $59.2bln (exp. $4.60bln);
- EPS $0.64 (exp. 0.59),
- Capex $3.1bln (exp. 3.33bln, -4bln Y/Y)
The company's Adjusted net income of $2.76BN (above the $2.55BN expected), was the first profitable quarter for XOM since Q1 2020, and benefited among other things from a boost in output in the Permian Basin, the world’s busiest shale patch, by 12% to the equivalent of 394,000 barrels of oil a day:
Needless to say, higher commodity prices drove Exxon’s first-quarter profit. Exxon’s average realizations for crude oil rose 42% from the fourth quarter, while natural gas realizations climbed 33%.
As for CapEx, Exxon said it was keeping its capital budget at $16 billion-$19 billion this year, a level that management has said is rock bottom, probably below maintenance levels, adding that "If market conditions continue above the company’s planning basis, additional cash will be used to accelerate deleveraging."
That said, for Q1, Exxon kept a really tight belt on spending with total Capex at $3.13 billion. If the company was to keep a similar lid on spending throughout the year, it would in come around $12.5 billion, undershooting its current target of $16 billion-$19 billion. The expectation, however, is for spending to accelerate in the second half of the year.
Some more details on Q1 financials:
- Upstream earnings 2.55bln (exp. 2.62bln)
- Chemical earnings 1.42bln (exp. 970mln)
- Cash flow from operations and asset sales 9.57bln (+50% Y/Y)
- Downstream loss 390mln (exp. loss of 134mln)
Here Bloomberg notes that as with Shell, Exxon enjoyed the strong upswing in the chemical market. The company generated $1.4 billion in adjusted net earnings (total adjusted earnings were $2.7 billion). Exxon said it benefited from “continued strong demand, global shipping constraints, and ongoing supply disruptions, particularly in North America, where the polyethylene and polypropylene markets were affected by severe winter weather in Texas.”
And some more on chemicals, which is benefiting from the current rage in house-building, a trend that should be enough to move the needle even for an oil giant the size of Exxon. As such, BBG notes that "Its chemicals division is being lifted by surging prices for plastics." The cost of PVC, used in pipes, and polypropylene, which packages consumer goods, reached record levels earlier this year, driven by a combination of strong demand and production outages caused by the winter storm and back-to-back hurricanes last year.
- Worldwide Net production of BOE/D: 2.258mln
- Refinery throughput 3.75mln BPD (-7.6% Y/Y)
- Natural gas production (mcfd): 9.173mln (exp. 8.870mln)
- Chemical prime product sales (KT): 6,446 (+3.4% Y/Y)
- Downstream petroleum product sales: 4.88mln BPD (-7.7% Y/Y)
While Exxon’s downstream results have improved from a year earlier, the company still reported a loss of $390 million for the segment, highlighting that continued pandemic-driven weakness for refining. The February winter storm also hit downstream results.
The numbers would have been even stronger had it not been for the freak February Texas freeze: Like Chevron, Exxon reported a hit to earnings from the winter storm that pummeled Texas in February, amounting to nearly $600 million: "the severe weather event reduced first-quarter earnings by nearly $600 million across all businesses from decreased production and lower sales volumes, repair costs, and the net impact of energy purchases and sales. All affected facilities have resumed normal operations."
And yet, despite the storm-related disruptions, overall refining throughput last quarter was “essentially flat” with the fourth quarter as it managed refinery operations in line with fuel demand and integrated chemical manufacturing needs.
But while the top and bottom line were solid, what matters was the cash flow, and it was stellar, coming in at $6.1 billion thanks to $9.3BN in cash from operations, more than the $6.3BN estimat,. and more than enough to cover the $3.7 billion the oil giant pays in dividends each quarter.
The cash flow was not only enough to cover capex and the dividend, but also left extra cash to pay down $4 billion in debt!
Bloomberg Intelligence had this to say: “Exxon managed to cover its dividend for the first time since 2018, generating a modest $463 million in excess cash, plus gains from asset sales to reduce debt. Most of its attention in the release is to fight activist Engine 1’s proposals at the upcoming shareholder meeting.”
This jump in cash flow was in large part thanks to some of the best operating cash cost reductions in the industry.
Not surprisingly the company said that “the focus remains on continuing to grow positive free cash flow by lowering overall development costs and increasing recovery through efficiency gains and technology applications.”
Most importantly, after reducing borrowings this quarter, Exxon’s total debt now stands at $63.3 billion, lower than the record high of $69.5 billion reached in the second quarter of 2020, but still about 35% higher than at the end of 2019, according to Bloomberg calculations.
Elsewhere, the company's guidance was solid across all sectors: :
Upstream Guidance (via slides see below):
- Lower volumes with seasonal gas demand and higher scheduled maintenance
- UK North Sea sale expected to close near mid-year, subject to regulatory and third-party approvals
- Continuing demand improvement with economic recovery
- Higher planned turnarounds and maintenance
- Continuing tight supply/demand balance with increased industry maintenance
- Higher planned turnarounds and maintenance
Notably, Exxon said in its slide presentation that its Permian drilling and completion costs have declined 40% versus 2020, as have lease operating expenses. Last year’s pandemic has forced price reductions for oil services. In fact, that’s allowed producers to slash CAPEX without cutting too much of their oil production.
Finally, the presentation has several slides dedicated to the hostile proxy fight with Engine No 1 (which bought a few millions XOM shares and thinks it can decide strategy) as well as its much better relationship with that other, and far more respectable activist, DE Shaw.
Full presentation below