Updated Aug 6 at 1:53pm ET.
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Oil prices jumped on Thursday following reports that Iran may impose new, restrictive conditions on ships moving through the Strait of Hormuz. This narrow waterway is a vital choke point for global energy, as roughly one-fifth of the world's oil and natural gas passes through it.
For a major producer like Exxon, any threat to global supply typically pushes oil prices higher, which boosts the amount of money it makes on every barrel it pulls from the ground. While a full closure would disrupt global trade, the immediate effect of these tensions is higher market prices for the energy Exxon already has in its pipeline.
Source: CNBC
President Trump publicly criticized the high profits at Exxon and Chevron, stating that the companies should give back to the public by cutting retail fuel prices. These comments come as geopolitical tensions have driven oil prices higher, leading to a surge in earnings for the largest energy firms.
While the government does not directly set oil prices, this kind of political pressure can lead to new taxes on "windfall" profits or tougher regulations. For long-term owners, the risk is that political pushback could eventually limit how much of these high earnings the company is allowed to keep and return to shareholders through buybacks or dividends.
Source: Bloomberg Markets and Finance
Exxon delivered its strongest quarterly profit in four years, earning about 14.7 billion dollars in adjusted profit. While the earnings per share of $3.52 was just a few cents shy of what analysts expected, the underlying business is running at full speed. The company reached record production levels in the Permian Basin, a massive oil-rich region in the U.S., and is on track to start a new project in Guyana later this year that will further increase its capacity.
This performance shows the company is successfully turning high global oil prices into cash. It has also cut about 16.3 billion dollars in structural costs, which are permanent reductions in how much it spends to run the business. By becoming more efficient and focusing on low-cost oil fields, Exxon is making itself more profitable even when energy prices eventually settle back down.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Exxon has reached a milestone in Guyana by fully recovering the billions of dollars it spent to build out a large offshore oilfield. In these types of deals, the company gets to keep a larger share of the oil produced until its construction and drilling costs are paid off. Now that those costs are covered, the profit split changes.
While the country of Guyana will now receive a larger portion of the money, this is a win for Exxon because it proves the project is highly profitable and generating massive cash flow. It validates the company's strategy of investing heavily in Guyana, which has become one of the most important and lowest-cost sources of oil in its global portfolio.
Source: Reuters
B of A Securities lowered its rating on Exxon from a buy-equivalent to Neutral. This change usually means the analysts believe the stock price already reflects the company's strong performance and high oil prices, leaving less room for the stock to significantly outperform the rest of the market in the near term.
This is a shift in sentiment rather than a warning about the business itself. The company continues to generate record production and high profits, but after a strong run for the stock, some analysts are waiting for a better price or a new reason to be more optimistic.
Analysts have been adjusting their price targets following the company's recent earnings report. Most analysts are split with 22 buys and 33 neutral or bearish ratings, and the average target of $171 suggests 10% room to grow.
Exxon Mobil has beaten expectations in six of the last eight quarters. Management consistently clears the bar, though the most recent quarter showed how much results can swing when oil prices move.
| Expectation | |
|---|---|
| EPS | $3.45 |
| Revenue | $96.16B |
