ExxonMobil Releases 1Q15 Results: Sharp Declines but Optimistic Future (Part 3 of 5)
Upstream net income falls in 1Q15
ExxonMobil (XOM) witnessed a significant decline in upstream earnings in 1Q15. The segment recorded $2.85 billion net income that quarter compared to $6.41 billion net income in 1Q14.
The decline was particularly severe in the company’s US upstream operations. It recorded $52 million net loss versus $1.24 billion in net income in the year-ago quarter. In non-US operations, ExxonMobil’s upstream business recorded a 56% decline in net income.
Lower price realizations decreased upstream earnings by $5.5 billion in 1Q15 over the year-ago quarter. However, a better product mix partially helped protect margin dip.
Crude oil price
In 1Q15, ExxonMobil’s average realization of crude oil was 54% lower than 1Q14. Natural gas price realization decreased 47% in the United States during the same period.
From January 1 to March 31, WTI (West Texas Intermediate) crude oil price fell ~10%. During the same period, Henry Hub natural gas prices decreased 12%. The WTI price reflects the US crude oil producers’ price.
Crude oil price is the primary determinant of any energy upstream company’s business. In its upstream operations, ExxonMobil (XOM) explores, produces, and markets crude oil. So the fall in crude oil price results in falling revenue.
Falling crude oil price can also disincentivize producers like ExxonMobil (XOM), BP plc (BP), and Royal Dutch Shell (RDS.A) on exploration activity–related expenditures. Exxon plans to cut capex (capital expenditures) by 11% to $34 billion in 2015 over 2014. To find out more, you can read Market Realist’s series Is a crude oil price trend forcing energy companies to bite the bullet?
ExxonMobil is 15.1% of the Energy Select Sector SPDR ETF (XLE). BP is 4.9% of the iShares Global Energy ETF (IXC).
Strong upstream production
ExxonMobil’s (XOM) total crude oil and natural gas production increased in 1Q15 from 1Q14. On an oil-equivalent basis, total production increased 2.3% to 4,248 thousand barrels of oil equivalent per day (or MBOE/D) in 1Q15 over 4,151 MBOE/D in the previous-year quarter.
In 1Q15, the upstream projects that led to higher production were Arkutun-Dagi field at Sakhalin-1 located in the Russian Far East, Hadrian South in the Gulf of Mexico, and Kizomba Satellites Phase 2 in Angola offshore. ExxonMobil (XOM) also resumed construction at Point Thomson on Alaska’s North Slope during 1Q15.
In 2015, ExxonMobil plans to start up seven new major projects, which may add another 300,000 barrels of oil per day to its working interest capacity.