ExxonMobil’s integrated model dynamics
Changing oil prices have changed segment dynamics within ExxonMobil (XOM). The upstream segment, which contributed 83% of the total earnings in 4Q14, contributed 31% in 4Q15. On the other hand, downstream earnings rose threefold over 4Q14 to $1.4 billion in 4Q15. While the chemical segment’s earnings fell by 22% over 4Q14 to $963 million in 4Q15, the segment’s contribution to total earnings rose from 19% in 4Q14 to 35% in 4Q15.
Thus, while the overall earnings have slumped from $6.6 billion in 4Q14 to $2.8 billion in 4Q15, the downstream and chemical segments have notably resisted the fall.
XOM’s peers have also seen their segment dynamics change. The upstream segment of Royal Dutch Shell (RDS.A), which contributed 57% of the total earnings in 4Q14, contributed 27% in 4Q15. Plus, Chevron (CVX) and BP’s (BP) upstream segment, which contributed 77% and 55% of earnings, respectively, in 4Q14, posted losses in 4Q15. The PowerShares Dynamic Large Cap Value ETF (PWV) has ~11% exposure to energy sector stocks.
XOM’s 1Q16 outlook
In 1Q16, ExxonMobil’s upstream segment is likely to witness lower earnings due to a fall in crude oil prices. WTI (West Texas Intermediate) and Brent prices, which averaged $49 and $54 per barrel, respectively, in 1Q15, dropped to $33 and $34 per barrel, respectively, in 1Q16.
Plus, the refining segment earnings, which are dependent on refining margins, are likely to be stressed. The broader market crack indicator, the US Gulf Coast WTI 321 crack, has fallen from $19 per barrel in 1Q15 to $10 per barrel in 1Q16. Plus, in 1Q16, the broader market oil spread indicator, Brent-WTI, has fallen on a yearly basis. Thus, pressurized cracks coupled with narrowing oil spreads could likely lead to subdued earnings from the downstream segment in 1Q16.