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Is ExxonMobil’s Integrated Model Holding Down the Fort?

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ExxonMobil’s upstream integrated model

ExxonMobil’s (XOM) integrated model has been an earnings savior for the company in the low oil price environment. Earnings from the company’s upstream segment have fallen steeply. The segment, which contributed 58% of the company’s total earnings in 1Q15, turned into a loss-making segment in 1Q16.

Earnings for the upstream segment plunged to -$76 million in 1Q16. This was on the back of falling crude oil prices. Brent prices, which averaged $54 per barrel in 1Q15, slipped to $34 per barrel in 1Q16.

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Downstream earnings fell, but chemical earnings rose

ExxonMobil’s earnings from the downstream segment fell due to lower margins, partly offset by favorable volume and mix effects. ExxonMobil’s downstream earnings fell by 46% over 1Q15 to $0.91 billion in 1Q16. XOM’s downstream segment contributed the main portion of its 1Q16 earnings.

While the downstream segment’s earnings fell, its contribution to total earnings rose from 34% in 1Q15 to 50% in 1Q16.

ExxonMobil’s chemical segment’s earnings rose by 38% over 1Q15 to $1.4 billion in 1Q16. Earnings rose in the segment due to better chemical margins and higher sales volumes.

While the company’s overall earnings slumped from $4.9 billion in 1Q15 to $1.8 billion in 1Q16, its downstream and chemical integrated model notably resisted the fall.

XOM’s peers’ segmental trends

ExxonMobil’s peers have also seen their segment dynamics change. Total S.A.’s (TOT) upstream segment, which contributed 48% of its total adjusted earnings in 1Q15, contributed just 26% in 1Q16. Suncor Energy (SU) and BP (BP) also reported losses in their upstream segments in 1Q16.

The Vanguard Energy ETF (VDE) has ~39% exposure to integrated energy sector stocks.

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