Exxon Mobil’s green shade is what investors want

There’s nothing like flashing some green to excite energy investors these days, as long as it’s the color of cold and hard cash.

Exxon Mobil‘S

XOM -0.89%

The first quarter is something of a mixed bag. The company announced quarterly net profit $5.5 billion in the first quarter, far short of the $9.5 billion that analysts polled by Visible Alpha spent. The large gap is due to the large after-tax fees associated with Exxon exits Russia (accounting for less than 2% of production last year), but even without that impact, its earnings would be around $700 million less than expected.

Although inflation has affects everyone in the oil fieldsExxon CEO Darren Woods said during Friday’s earnings press conference that the impact is manageable because the company has extended many contracts during the pandemic, as oilfield service costs have fallen. .

Brent crude oil price $22 per barrel higher than the previous quarter on average, but that wasn’t enough to reduce production volumes lower, something Exxon has been striving for due to extreme weather in Alberta and maintenance operations.

The bigger disappointment, however, was Exxon’s downstream operations, which delivered 62% less profit than analysts had expected. The failure is mainly related to the timing effects of the company’s hedging measures, which are used to manage price risk.

However, any disappointment in last quarter’s overwhelming profits seems to have been wiped away by Exxon’s strong buyback announcement: Its share price fell about 1% after Friday’s earnings call. Although Exxon has yet to raise its dividend, it said it will triple its share buyback program to $30 billion through 2023, or about $15 billion a year. That pounding


which commits to buy back up to $10 billion a year. On a yearly basis, Exxon’s buyback generosity will return to levels last seen in 2013.

While there are notable points in Exxon’s results, in a commodity-price environment, the company should be in a better position than its peers. By far, Exxon has the highest refining footprint among supermajor’s peers (more than twice that of


second largest) and the largest presence in the Permian basin, two areas with the potential to increase future profits.

According to Devin McDermott, equity analyst at

Morgan Stanley.

Margins are likely to remain high going forward, especially if the world continues to avoid importing refined products from Russia.

Exxon said derivatives-related losses in the refining segment will reverse in the coming quarters. Meanwhile, periods of strong commodity prices could keep investors’ eyes on the longevity of companies’ oil portfolios, which measure long-term production potential, such as Biraj Borkhataria, equity analyst at RBC Capital Markets, noted in a recent report. Mr. Borkhataria said that Exxon gave this metric a good rating due to its large position in the Permian period and several major discoveries in Guyana.

Although Exxon’s stock price has risen dramatically, now up about 40% year-to-date, Exxon’s enterprise value is a multiple of expected earnings before interest, taxes, amortization and Depreciation remains lower than Chevron, a reversal of historical trends. As long as investors remain glued to the greens that Exxon has to offer, the company’s stock may still have some room to run.

Write letter for Jinjoo Lee at

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