By Sabrina Valle
HOUSTON (Reuters) – Exxon Mobil Corp missed analysts’ estimates on Friday with a 28% year-on-year decline in first-quarter profits as weaker refining margins and lower natural gas prices offset volume gains.
The largest U.S. oil company, which is finalizing a $60 billion deal for leading shale oil producer Pioneer Natural Resources, reported first-quarter profit of $8.22 billion, or $2.06 per share, compared with net income of $11.43 billion a year ago.
The stock fell 2% to $118.50 in premarket trading after reporting per-share earnings of $2.06, which was 6% below Wall Street analysts’ consensus of $2.20. Dollars per share, LSEG estimates showed.
Oil and gas production revenues fell 14% due to lower natural gas prices, and refining fell 67% due to weaker margins and capital and tax costs. However, the standout was the chemicals business, whose profits more than doubled due to lower input costs and higher margins, the company said.
Profit of $8.22 billion in the first quarter ended March 31 was 29% below adjusted profit of $11.62 billion a year earlier.
But the results were the second-highest for a first quarter in the last decade and lagged the same period last year, Chief Financial Officer Kathryn Mikells said. The miss was due in part to tax and inventory balance adjustments, she said.
“Every quarter we have some pros and cons associated with these one-time items,” she said. “Sometimes they are favorable, this time they were unfavorable.”
Global oil prices remained largely unchanged compared to last year, while natural gas prices fell sharply. U.S. gas futures ended the quarter trading 20% lower year-on-year.
Results were boosted by lower costs and higher volumes at Exxon’s Guyana business. A day earlier, Hess highlighted the increase in production in the South American country, with production increasing by 70% compared to the previous year.
Exxon’s capital spending last quarter was the lowest in seven quarters, and streamlining operations boosted so-called structural cost savings by $400 million.
The company added $1.7 billion in cash last quarter and ended the period with $33.3 billion.
DEAL CLOSURE
Exxon’s acquisition of Pioneer is expected to be completed in the coming weeks. Exxon began the integration process with a team working independently of the company, Mikells said.
“We feel really good about dealing with the Pioneer people and making sure we do our best in closing this transaction,” she said.
The all-stock deal for Pioneer would make Exxon the largest oil and gas producer in the key U.S. shale patch, doubling production there to more than 1.3 million barrels of oil equivalent per day. Exxon predicts that this combination will enable production of 2 million barrels per day in 2027.
That deal was the largest in a series of blockbuster mergers in recent years, as wildcats like Pioneer, Endeavor Energy and CrownRock were acquired by larger companies looking to secure years of future production and achieve economies of scale through expanded operations.
Pioneer shares traded at $275 apiece this week, up 9% from October’s deal value.
HESS ARBITRATION
Exxon is fighting with Chevron and Hess over assets in Guyana, home to the biggest oil discoveries of the last two decades. In light of Chevron’s $53 billion bid for Hess, Exxon has claimed first right of refusal on Hess’ assets in Guyana. This claim is currently being examined by an international arbitration tribunal.
Hess’s 30 percent stake in the Guyana joint venture is the price for the planned takeover by Chevron.
Mikells said Exxon and its partner CNOOC Ltd would “consider our options” if the tribunal agrees they have priority for a sale.
“It’s about clarifying our contractual rights, period,” she said.
(Reporting by Sabrina Valle; Editing by Sonali Paul)