Exxon’s second quarter: production down, refining tanks, and even chemicals suffer

Exxon Mobil had a horrible quarter all around that wasn’t masked by tough comparisons due to big divestitures a year ago. The oil giant’s second quarter profit missed estimates by a wide margin as production volumes fell, refining suffered, and chemical earnings halved, even as they returned nearly $7 billion to shareholders.The world’s largest publicly traded oil company saw profits dropped a dramatic 57 percent to $6.86 billion in the quarter, which translates into an EPS of $1.55; Wall Street was looking for earnings of $1.89 per share. Even excluding a $7.5 billion gain in the previous quarter due to the restructuring of Japanese operations and taxes, earnings fell 19 percent.

Exxon’s problems stretched across the board, as crude oil prices remained range-bound in the quarter and the company faced operational problems. Total revenues fell 16.4 percent to $106.5 billion, narrowly topping the $101.8 billion estimate. Nearly all of the money came from Exxon’s upstream operations, despite a 25 percent decline to $6.3 billion in profit. Production volumes fell to 4.07 million barrels a day on an oil equivalent basis, as the company faced large declines in European natural gas demand and a drop in volumes across the Middle East and Asia Pacific regions. Exxon also had to return capital to Russia’s Rosneft as they jointly explored the arctic for new discoveries.

Over the past several quarters, energy majors had relied on the diversity of their business model to offset weakness elsewhere. In the second quarter, though, Exxon’s downstream operations fared even worse. Earnings fell off a cliff, going from $6.65 billion a year ago to a meager $396 million, mainly due to a $5.3 billon gain due to the restructuring of Exxon’s Japanese refining assets. Exxon was also forced to take a major write-down on its Dartmouth facility, worth about 25 cents in an EPS basis, according to Citi. Weaker margins, mainly in refining, along with volume, mix, and longer than expected maintenance costs hurt downstream. Even the chemicals units suffered in Q2. Earnings halved to $756 million, much of that due to the restructuring of the company’s Japanese assets, but lower margins, volume, and mix problems also contributed.

The oil giant had its worse second quarter since 2009, which was Exxon’s weakest quarter in the past four years. The company returned $6.8 billion to shareholders, while capital expenditures hit $10.2 billion, in line with the company’s expectations. Exxon has been one of the worst performing energy stocks this year, substantially lagging the broader market. Apart from BP, Exxon’s stock price has traded well below peers like Chevron and ConocoPhillips, and oil field service firms like Schlumberger and Halliburton.

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