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ExxonMobil’s 2Q15 Earnings Halved

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ExxonMobil records losses in E&P segment

ExxonMobil (XOM), one of the largest US oil companies, reported 2Q15 earnings last Friday, which were the firm’s lowest earnings in more than five years. Dwindling earnings in the E&P (exploration and production) segment couldn’t be offset by larger profits from the firm’s refining segment. Following the announcement, the firm’s shares tumbled by around 5%.

As you can see in the above figure, upstream earnings have taken a massive beating, owing to lower oil prices. Brent crude prices for 2Q15 declined by more than 40% year-over-year due to oversupply in the global markets.

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Improving the proportion of liquids in the production mix

We can split ExxonMobil’s hydrocarbon production into natural gas and liquids such as synthetic oil, crude oil, bitumen, and natural gas liquids. Higher price realizations make liquids more profitable for production compared to natural gas. While the company sold liquids at about $85 per barrel last year, the price it realized for natural gas was about $40 per barrel of oil equivalent (or BOE). This is why Exxon has been trying to tweak its production mix over the last few years in order to enhance its percentage of liquids.

Cost cutting measures

Exxon stated that it will scale back its stock repurchase programs for the present quarter to a limit of $500 million. Share repurchases for 2Q15 amounted to $1 billion—down from an earlier figure of $1.8 billion in 1Q15. Capital spending for 2Q15 fell to $8.26 billion from $9.8 billion in the prior-year period. The fact that the firm is indulging in cash conservation measures could indicate that it doesn’t expect a rebound in crude oil prices anytime soon.

Integrated oil and gas majors Exxon, Chevron (CVX), and Occidental Petroleum (OXY) also posted weekly losses on their share prices. Together, these firms make up about 32% of the Energy Select Sector SPDR Fund (XLE) and 3% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

In the next part of this series, we’ll analyze Chevron’s financial performance.

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