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What's in Store for ExxonMobil's (XOM) Q4 Upstream Earnings?

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We expect Exxon Mobil Corporation's (XOM - Free Report) fourth-quarter 2018 results to show an improvement in earnings from upstream operations outside the United States. In the first nine months of 2018, the largest publicly traded energy firm generated 49.3% of total profit from its non-U.S. based upstream businesses.

However, we expect the company to see underperformance in its upstream operations in the United States. It is to be noted that ExxonMobil is set to release fourth-quarter 2018 results before the opening bell on Feb 1. (See more in Why Is a Q4 Earnings Beat Less Likely for ExxonMobil?)

Upstream Business

Upstream businesses represent ExxonMobil’s exploration, production and development activities in prolific oil and natural gas resources across the world.

Among all the business segments, upstream operation generally accounted for majority of the company’s earnings. Through the first nine months of 2018, ExxonMobil generated $10.8 billion earnings from its upstream businesses — both in and outside the United Sates — thereby contributing more than 60% of total earnings.

How Has Upstream Fared in Q3?

The improvement in year-over-year performance from upstream operations was primarily supported by robust oil and gas prices along with healthier fuel margins.

Non-U.S. Operation: During third-quarter 2018, ExxonMobil reported earnings of $3.6 billion from upstream activities outside the United States. This marked an improvement of more than 100% from the year-earlier profit of $1.8 billion.  

Moreover, non-U.S. profit from the segment beat the Zacks Consensus Estimate of $3.5 billion.

U.S Operation: From domestic operations, ExxonMobil reported earnings of $606 million against the year-ago quarter’s loss of $238 million.  

However, its third-quarter 2018 earnings missed the Zacks Consensus Estimate of $616 million.

Q4 Oil & Gas Pricing Scenario

Oil

In fourth-quarter 2018, the West Texas Intermediate (WTI) crude plunged from a multi-year high of $76.40 a barrel in early October to below $45 in late December, per the U.S. Energy Information Administration (EIA).

Soft demand outlook on fears of global economic slowdown kept energy stocks under pressure. Notably, the enforcement of sanctions against Iran — one of the leading oil producers in the world — by the United States last November could not keep oil price from plunging. This was because Washington issued sanction waivers to several countries to continue importing oil from Iran, till mid-2019.

Despite the free fall, the average WTI oil prices for October and November of 2018 were recorded at $70.75 and $56.96 per barrel, higher than $51.58 and $56.64 for the respective months of 2017, EIA added. However, the average crude price for December 2018 declined year over year.

Natural Gas

Per EIA, the average natural prices for the months of October, November and December of 2018 were reported at $3.28 per Million Btu, $4.09 per Million Btu and $4.04 per Million Btu, higher than $2.88, $3.01 and $2.82 for the respective months of 2017.

Forecast for Q4 Oil & Gas Production

Worldwide Natural Gas Production: The Zacks Consensus Estimate for natural gas production available for sale is at 9,801 million cubic feet per day (MMcf/D), lower than 10,441 MMcf/D for fourth-quarter 2017.

Production of Crude & Natural Gas Liquids Worldwide: The Zacks Consensus Estimate for daily net production of crude and natural gas liquids stands at 2,288 thousand barrels per day (B/D), marginally higher than 2,251 thousand B/D in the prior-year quarter.  

Projected Upstream Earnings for Q4

The decline in crude price through fourth-quarter 2018 along with pipeline bottleneck problem in some of the prolific domestic shale plays may affect ExxonMobil’s upstream operations in the United States. For upstream operations in the domestic region, the Zacks Consensus Estimate for after-tax earnings stands at $703 million, significantly lower from $7,061 million a year ago.

For upstream operations outside United States, the Zacks Consensus Estimate for after-tax earnings is pegged at $4.1 billion, up from $1.3 billion a year ago, counting higher worldwide production of oil and natural gas liquids.

Overall, we expect the domestic upstream business of ExxonMobil — a Zacks Rank #5 (Strong Sell) stock — to underperform in Q4, however, upstream operations outside United States are likely to outperform.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule & Release of Other Major Energy Players

Chevron Corporation (CVX - Free Report) will likely report fourth-quarter 2018 results on Feb 1. Meanwhile, integrated energy player BP plc (BP - Free Report) is scheduled to report results on Feb 5. Royal Dutch Shell plc (RDS.A - Free Report) , another integrated energy giant, has reported a year-over-year rise in fourth-quarter earnings.

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