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EXXON MOBIL CORP (XOM) Q4 2015 Earnings Summary

Executive Summary

  • Q4 headline: Earnings of $2.8B ($0.67 diluted EPS) on $59.8B of total revenues/other income; results reflected sharply lower Upstream realizations, partially offset by strong Downstream performance and favorable tax items (effective tax rate 13%) .
  • Capex slashed: 2016 capital and exploration expenditures guided to $23.2B (down ~25% from 2015’s $31.1B) as ExxonMobil tightens cash management through the downcycle; buybacks to reduce shares suspended in Q1’16 (anti-dilutive only) .
  • Operations: Oil‑equivalent production rose 4.8% YoY (liquids +299kbd, gas −631mmcfd), aided by project ramp‑ups (e.g., Banyu Urip CPF) and higher entitlements; six major Upstream projects started in 2015 and six more anticipated in 2016 .
  • Cost focus: Management highlighted $11.5B of 2015 cost reductions (OpEx ~$8.5B, CapEx ~$3B vs plan), positive free cash flow, and flexibility to “live within our means,” supporting the dividend while preserving balance sheet strength .

What Went Well and What Went Wrong

  • What Went Well

    • Downstream resilience: Q4 Downstream earnings rose $854M YoY on stronger refining margins, favorable mix, and lower maintenance (U.S. $435M; non‑U.S. $916M) . Quote: “Downstream and Chemical results highlight strength of integrated businesses.”
    • Volume growth from projects: Oil‑equivalent production +4.8% YoY, with liquids up 299kbd on project ramp‑ups and work programs; Banyu Urip ramping above 130kbd gross with CPF online . Quote: “We remain focused on…project execution and effective cost management.” (Rex W. Tillerson)
    • Capex flexibility and discipline: 2016 capex set at $23.2B “all in,” down from $31.1B in 2015, reflecting prudent cash management and capital efficiencies .

  • What Went Wrong

    • Upstream pressure: Q4 Upstream earnings fell $4.6B YoY driven by lower liquids/gas realizations (−$3.75B), and absence of prior‑year tax/arbitration benefits .
    • Inventory/tax noise: Downstream “other” included unfavorable inventory impacts; consolidated effective tax rate was 13% in Q4 due in part to one‑time items, which management cautioned are non‑recurring (long‑run 35–40%) .
    • Natural gas volumes: Gas production −631mmcfd YoY on regulatory restrictions in the Netherlands and field declines, partially offset by entitlements .

Financial Results

Headline P&L and Cash Metrics

MetricQ4 2014Q3 2015Q4 2015
Total revenues and other income ($MM)87,276 —59,807
Net income attributable to ExxonMobil ($MM)6,570 4,240 2,780
Diluted EPS ($)1.56 1.01 0.67
Effective income tax rate (%)32% 32% 13%
Capital & exploration expenditures ($MM)10,464 7,670 7,416
Cash flow from ops & asset sales ($B)7.7 9.7 5.1
Dividends per share ($)0.69 —0.73

Segment Earnings (US GAAP)

Segment ($MM)Q4 2014Q3 2015Q4 2015
Upstream – United States1,503 (442) (538)
Upstream – Non‑U.S.3,965 1,800 1,395
Upstream – Total5,468 1,358 857
Downstream – United States(1) 487 435
Downstream – Non‑U.S.498 1,546 916
Downstream – Total497 2,033 1,351
Chemical – United States832 526 520
Chemical – Non‑U.S.395 701 443
Chemical – Total1,227 1,227 963
Corporate & financing(622) (378) (391)
Net income attributable to ExxonMobil6,570 4,240 2,780

Operations & KPI Snapshot

KPIQ4 2014Q3 2015Q4 2015
Liquids production (kbd) – Total2,182 2,331 2,481
Natural gas production (mmcfd) – Total11,234 9,524 10,603
Oil‑equivalent production (koebd) – Total4,054 3,918 4,248
Refinery throughput (kbd) – Worldwide4,349 4,457 4,395
Petroleum product sales (kbd) – Worldwide5,845 5,788 5,679
Chemical prime product sales (kt) – Worldwide5,719 6,082 6,484
Cash ($B)4.7 4.3 3.7
Total debt ($B)29.1 34.3 38.7

Context and Drivers

  • Upstream: Realizations down sharply (−$3.75B YoY), with Q4 volumes +4.8% YoY; U.S. Upstream posted a $538M loss on low prices .
  • Downstream: YoY earnings +$854M on stronger refining margins and lower maintenance; “Other” included unfavorable inventory impacts .
  • Chemical: Earnings down $264M YoY on weaker margins and FX/tax/inventory effects, despite higher sales volumes .
  • Tax/one‑time: Effective tax rate was 13% in Q4 (down ~19ppt vs Q4’14), largely due to one‑time items; ex one‑time effects and portfolio mix, long‑term rate guided to 35–40% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital & exploration expendituresFY 2016“Below $34B” (2016/2017) commentary (Q3 call) $23.2B (−25% vs 2015) Lowered
Share repurchases (to reduce shares)Q1 2016Ongoing buybacks flexible; $500M reduction in Q4’15 No purchases to reduce shares outstanding in Q1’16; anti‑dilutive only Lowered
Effective tax rate (normalized)Ongoing35–40% long‑term 35–40% long‑term reaffirmed; Q4 at 13% due to one‑time items Maintained
Upstream project start‑ups2016n/aSix major projects expected (e.g., Gorgon/Jansz, Kashagan late‑year, Julia, Heidelberg, Point Thomson, Barzan) New detail
Dividend policyOngoingReliable, growing dividend Reinforced reliability/growth focus Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2’15, Q3’15)Current Period (Q4’15)Trend
Capital discipline/cuts“Downward vector” to $34B 2015; efficiencies/market savings; 2016/17 below $34B 2016 capex $23.2B “all‑in”; “live within our means” Accelerated cuts
Buybacks flexibilityTapering to match climate; flexible allocation Suspend reductions in Q1’16; anti‑dilutive only More conservative
LNG outlook/exposureLong‑term LNG demand to triple by 2040; low spot exposure (<10%) PNG exceeding 7.4 mtpa; near‑term oversupply till 2020–23; Golden Pass FERC process Consistent long‑term, near‑term cautious
U.S. unconventionalsMeasured pace; ~32 rigs; positive cash; basins performance Activity economic at current prices; maintain baseload; flex up/down Maintain optionality
M&A/bid‑ask“Too wide,” focused on bolt‑ons/value Patient; valuations still a gap; will be thoughtful Unchanged
Guyana (Liza)Early‑stage; seismic underway; appraisal plans Drillship/appraisal imminent; assessing commerciality Advancing appraisal
AAA rating/balance sheetStrong balance sheet emphasized AAA provides value; intent to maintain flexibility Reinforced
Cost reductionsUnit costs down ~9% YTD (Q2); procurement leverage $11.5B 2015 savings; more structural opportunities Intensifying

Management Commentary

  • “While our financial results reflect the challenging environment, we remain focused on the business fundamentals, including project execution and effective cost management.” – Rex W. Tillerson, Chairman & CEO
  • “The CapEx guidance…for 2016 of $23.2 billion is all in…[vs] $31.1 billion in 2015…we’re going to continue to live within our means.” – Jeff Woodbury, VP IR
  • “We get value from the AAA credit rating…It is really an outcome of our longstanding effective management of the business.” – Jeff Woodbury
  • “PNG…up to in excess of 7.4 million tons per annum…a phenomenal result…and we’re still going.” – Jeff Woodbury

Q&A Highlights

  • Capital allocation and buybacks: Management reiterated dual priorities (fund attractive investments, reliable/growing dividend) and confirmed halting buybacks to reduce shares in Q1’16, keeping flexibility as macro evolves .
  • Tax and inventory effects: Q4 effective tax rate 13% (down ~19ppt QoQ) largely from one‑time items; inventory effects were a ~$(375)M YoY headwind; long‑run tax rate 35–40% .
  • U.S. shale economics: Current investments are economic; Exxon is maintaining a baseload to preserve efficiencies and high‑graded services, with flexibility to adjust activity .
  • LNG and long‑term gas: Long‑term demand constructive; near‑term oversupply into 2020–23; low spot exposure and contract flexibility highlighted .
  • Project pipeline: Six start‑ups expected in 2016 (Gorgon/Jansz, Kashagan late‑year, Julia, Heidelberg, Point Thomson, Barzan), supporting volumes despite lower spend .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2015 EPS and revenue was unavailable at the time of this analysis due to data access limits. As a result, we cannot characterize beats/misses versus consensus in this report. We will update upon request once access is restored.

Key Takeaways for Investors

  • Capex reset is significant: 2016 spend guided to $23.2B (−25% YoY) signals deeper capital discipline and positions XOM to maintain dividend and balance sheet strength through the downcycle .
  • Shareholder returns shift: Buyback pause (beyond anti‑dilutive) prioritizes cash preservation; dividend remains the primary return lever in near term .
  • Integrated model cushioning: Downstream and Chemical continue to offset Upstream weakness; Q4 Downstream earnings +$854M YoY; Chemicals resilient despite margin pressure .
  • Volume growth under pressure but supported by projects: Liquids growth and new start‑ups (Banyu Urip CPF, 2016 slate) underpin 2016 production despite lower capex .
  • Tax/one‑time optics matter: Q4’s 13% effective tax rate boosted EPS but is not durable; normalize toward 35–40% for run‑rate modeling .
  • Balance sheet optionality: Rising debt to $38.7B at year‑end reflects counter‑cyclical funding; AAA emphasis suggests capacity to flex if M&A or project opportunities arise .
  • Near‑term narrative: Investors should focus on sustaining free cash flow at strip prices via cost/CapEx discipline, Downstream/Chemical margins, and execution of 2016 start‑ups as catalysts .

Appendix: Additional Context From Q4 Materials

  • Q4 asset sales proceeds: ~$785M proceeds; earnings impact ~$350M primarily in Downstream .
  • Share count and distributions: Q4 dividends $0.73/sh; $3.6B distributed in Q4 including $500M in buybacks to reduce shares; average diluted shares 4,183M .
  • Average realizations: U.S. crude $34.36/bbl; U.S. gas $1.80/kcf; non‑U.S. crude $36.99/bbl; non‑U.S. gas $5.80/kcf .

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