Will Exxon Mobil’s production continue to drop?

Exxon Mobil will report its third-quarter figures before the open of the New York Stock Exchange on Friday 31 October.

An Exxon filling station
Source: Bloomberg

Exxon Mobil’s share price has had a tough time since its last update. At the end of July the company posted second-quarter revenue of $111 billion and earnings per share of $2.05, compared with expectations of $104 billion and EPS $1.86. Despite exceeding estimates, the share price suffered as traders focused on the decline in production. During the second quarter of 2014, production was running at 3.84 million barrels per day, a 5.7% decline from the same period in 2013, while analysts expected a reading of 3.96 million barrels.

Production levels in the US, Canada and South America remain healthy, but levels in Asia and Europe dropped by 23% and 10% respectively. In July, the company announced a $1 billion investment in Belgium. The region has seen disinvestment in recent years so the decision raised some eyebrows, but a director of the company stated the refineries are low cost and could have a life expectancy of 30 to 50 years. The energy giant is clearly looking at the long term, but while production is down I wonder if it will pay the price for it in the short term?

Last month Exxon suspended its joint venture with Rosneft which is controlled by the Russian government. The two oil companies were involved in offshore drilling in the Arctic but Rosfent is headed by Igor Sechin who is on the sanctions list, and there is no sign of the sanctions being lifted any time soon. Some people have speculated that it was always Valdimir Putin’s plan to wait for winter to begin before negotiating with the West, and as Europe depends heavily on Russian energy the ball is in Moscow’s court.

The Ebola outbreak in West Africa has disrupted production, and offshore drilling plans in Liberia have been put on hold because onshore support is required. Exxon also has operations in Nigeria, and a number of employees have been prohibited from travelling to counties that have been affected.

Analysts are expecting third-quarter revenue of $108 billion and EPS of $1.72, versus revenue of $112.37 billion and EPS of $1.79 for the third quarter of 2013.

The number of speculators shorting the stock has declined by 23% from the end of July to the end of September; in fact the short interest at the end of September is the lowest for 2014.

If production continues to decline the stock could target $90, putting it close to the year's low of $89.30. However, impressive output figures could drive the stock to $98.04.

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