Exxon Plunges After Surprise Refining Costs Erode Returns

(Bloomberg) -- Exxon Mobil Corp. plunged the most in six months after higher-than-expected maintenance costs diminished oil-refining results.

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The shares dropped as much as 4.2% Friday, marking the oil giant’s worst intraday decline since it announced a $60 billion takeover of Pioneer Natural Resources Co. in October. It came on a day when the rest of the S&P 500 was buoyed by blockbuster profit reports from Alphabet Inc. and Microsoft Corp.

A grab bag of mostly non-cash accounting items was behind the rare earnings miss for Exxon, which posted an adjusted per-share profit that was 13 cents below what analysts had forecast. Those surprises included elevated spending on refineries, lower-than-expected US production and unsettled derivative contracts.

“Any given quarter we’ll have a number of non-cash, just a bit more unusual expenses that kind of ebb and flow,” Chief Financial Officer Kathy Mikells said in an interview. “This quarter we had a number of small ones that added up together to be more significant, and that’s difficult for analysts to model.”

Chevron Corp., meanwhile, announced better-than-expected profits Friday but reported lower free cash flow than analysts expected. Its shares dipped less than 1%.

Expectations were particularly high for Exxon going into earnings because it’s the best-placed among big oil companies to take advantage of a shift in investor sentiment favoring production growth. But surging growth from Exxon’s massive project in Guyana, which rose more than 35%, wasn’t enough to lift the stock.

“Particularly weak results from international refining which failed to capture the strength in refining margins due to high turnarounds,” Kim Fustier, head of European oil and gas research at HSBC Holdings Plc, wrote in a note.

One bright spot for Exxon was cash flow from operations. At $14.7 billion, it came in $1 billion higher than analysts forecast. Meanwhile, the company still expects the Federal Trade Commission to approve its $60 billion deal to purchase Pioneer in the second quarter.

“We continue to work constructively with the FTC as they conduct a very thorough review and remain confident that no competition issues should hinder the transaction,” Chief Executive Officer Darren Woods said during a call with analysts.

Read More: Exxon Expects FTC to Approve Pioneer Deal by Mid-Year, CFO Says

In Guyana, Exxon started output at its third development in the region, Payara, ahead of schedule late last year, adding 220,000 barrels of daily supplies that would be profitable even if crude plunges to $35 a barrel.

“We continue to bring projects in more quickly and under budget so we’ve just had great execution in Guyana,” Mikells said, noting that gross daily production now exceeds 600,000 barrels, up from 440,000 in the final three months of 2023.

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Exxon’s performance in Guyana underscores why arch-rival Chevron wants to get a piece of the project through its proposed $53 billion takeover of Hess Corp., which has a 30% stake in the South American discovery. Exxon claims it has a right-of-first refusal over Hess’s stake while Chevron says that doesn’t apply because its deal is a corporate merger.

The two companies are locked in arbitration proceedings over the dispute, which are still in “very early days,” Mikells said. Each side has chosen one arbitrator who will sit on a panel of three, she said. Hess this week extended the closing date of its deal with Chevron by six months to October.

On Chevron’s call with analysts, Chief Executive Officer Mike Wirth said he sees “no legitimate reason to delay” arbitration, saying he hopes to complete the Hess deal by the end of the year. He acknowledged, however, that the timeline will be determined by the arbitrator panel.

Wirth pushed to reassure analysts on the call that own Chevron’s mega project on Kazakhstan’s western steppe, Tengiz, remains on schedule for full start-up next year.

The company’s adjusted first-quarter profit of $2.93 a share was 3 cents higher than the average of analyst estimates in the Bloomberg consensus. Crude-oil output of almost 2 million barrels a day exceeded forecasts.

Chevron’s Permian Basin output dropped to the equivalent of 859,000 barrels a day during the period from 867,000 in the final three months of 2023. Wirth had warned production would temporarily sag before rebounding during the second half of the year and eventually growing 10%.

--With assistance from David Wethe, Mitchell Ferman and Ruth Liao.

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