Lower natural gas prices and refining margins may pull ExxonMobil’s second quarter profits down from the first three months of the year by nearly $4 billion.
In a Form 8-K filing with the U.S. Securities and Exchange Commission, the supermajor previewed the factors impacting 2Q2023 results. ExxonMobil is facing the same dilemma as its peers as commodities prices ease after achieving record global profits.
In the first three months of 2023, ExxonMobil delivered the highest first quarter earnings in its history, even as prices moderated from the fourth quarter.
Natural gas prices have plunged since 4Q2022 through 1H2023, but have recently shown signs of a rebound as the calendar enters 3Q2023. NGI’s Bidweek Survey prices over the last eight months bear this out. NGI’s December 2022 Bidweek Henry Hub price of $6.715 plummeted in 1Q2023 to $2.450 for March bidweek, and eased even lower in 2Q2023 to $2.170 for June bidweek. However, Henry Hub natural gas prices reversed course to $2.600 for July bidweek.
The second quarter results are unlikely to match the recent highs. Operating profits were set to decline to about $7.8 billion from 2Q2022 earnings of $17.9 billion.
Weaker natural gas prices in 2Q2023 than in 1Q2023 were predicted to cut into upstream profits by $1.8-2.2 billion. Impacts from liquids pricing at the midpoint were predicted to be $200 million lower. Refining margins also are predicted to reduce operating results by $2.1 billion.
While there was minimal discussion about natural gas prices during ExxonMobil’s 1Q2023 conference call, CEO Darren Woods had acknowledged that “lower demand from mild winter temperatures maintained the high inventories we’ve seen throughout this year.”
Negative Reaction
The preview of 2Q2023 results, which are scheduled to be published on July 28, drew a mostly negative reaction from energy analysts.
“Exxon's gas realizations benefited from lagged LNG prices, which likely drove the difference as prices normalize,” BMO Capital Markets analyst Phillip Jungwirth said. The factors cited in the filing “aren't comprehensive and limited to market dynamics, seasonal patterns and planned activities.”
However, the filing indicates that earnings per share (EPS) may be around $1.94 “at the midpoint, versus our/consensus $2.29,” the BMO analyst said. “The implied miss was from gas prices (lagged liquefied natural gas realizations) and weaker refining margins; both contributed to 2022 outperformance. We view the update as negative, although note Exxon has beat 8-K indicated earnings by an average 22 cents over the past three quarters.”
Tudor, Pickering, Holt & Co. (TPH) analyst Matt Murphy said the preliminary results also “suggest downside to our prior estimates and consensus, with variance versus our model largely driven by lower margins across the downstream segments.”
TPH estimated an adjusted EPS “in the $2/share range versus our prior $2.27/share and the Street’s $2.29/share.”
Mizuho Americas energy analysts suggested that “weak gas pricing” may drive ExxonMobil’s 2Q2023 EPS 12% below consensus. Like their peers, the analysts estimated a quarterly EPS of $2.01, which is 3.6% below Mizuho’s prior expectations.
In a note, Goldman Sachs analyst Neil Mehta said, “Outside of the quarter and more broadly for ExxonMobil, we remain constructive on the company’s advantaged portfolio depth and strong execution. He cited the “Upstream volume outlook, increased trading capabilities and further anticipated cost reductions.” Ultimately, though, Goldman remains “neutral following our prior downgrade in May after multi-year outperformance.”
