Exxon pumps up position in world of cheap oil

October 30, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Exxon Mobil is pumping up its position in a world of cheap oil. The $340 billion energy giant stood firm despite sharply lower profit in the third quarter, avoiding the kind of writedowns and job cuts that overshadowed results at Royal Dutch Shell and Chevron. An iron-clad balance sheet and strong cash flow leave the world’s biggest private-sector oil producer primed to acquire assets as weaker rivals falter.

The Irving, Texas-based oil titan did take a hit from crude’s price drop. Net income of $4.2 billion for the three months ended in September was 47 percent less than a year ago as a jump in refining profit failed to offset lower returns from Exxon’s oil and gas fields.

The pain is relative, though. The company managed to squeeze $1.4 billion of profit from crude production during the quarter, despite a near 60 percent drop in oil prices since last summer. Sub-$50 per barrel crude all but wiped out Chevron’s upstream earnings, however, driving quarterly profit down 64 percent. Chevron also sharply lowered its projections for capital spending, saying less investment could lead it to cut up to 7,000 jobs.

A $7.9 billion writedown at Shell, meanwhile, pushed Europe’s biggest petroleum company to a quarterly loss on Thursday. Conoco, the $66 billion independent U.S. oil producer, reported its third loss in four quarters.

Exxon may eventually have to engage in layoffs and writedowns if oil remains cheap. But its total debt-to-equity ratio of 17 percent is the lowest in the sector, and cash flow from new projects is starting to rise. That should allow the company to keep paying dividends and buying back stock while it waits for prices to increase. Exxon’s shares have also outperformed those of its biggest rivals since crude prices took a dive, leaving it with a stronger currency for making acquisitions.

The company wouldn’t say on Friday’s earnings call whether it planned to do any deals, stating only that any acquisition would have to compete with a “diverse inventory” of internal projects. In the battered oil patch, that’s a nice problem to have.

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