(Bloomberg) — Exxon Mobil fell by the most in six months as higher-than-expected maintenance costs hurt refining results.
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Exxon fell as much as 4.2% on Friday, its worst intraday decline since announcing its $60 billion acquisition of Pioneer Natural Resources Inc. in October. The decline came on a day when the rest of the S&P 500 index rose on blockbuster earnings announcements from Alphabet Inc. and Microsoft Inc.
Exxon's rare underperformance was largely due to buying up non-cash accounting items, with adjusted earnings per share 13 cents below the Bloomberg consensus. Those surprises included higher spending on refineries, lower-than-expected U.S. production and unresolved derivative contracts.
“In any given quarter, we're going to have some non-cash expenses and some slightly unusual expenses that will have their ups and downs,” Chief Financial Officer Kathy Michels said in an interview. “There were a lot of small events in this quarter that added up to something more significant, but it was difficult for analysts to model it.”
Expectations were high that Exxon would make a profit because it is in the best position among its peers to take advantage of shifts in investor sentiment favoring increased oil production. However, the rapid rise in oil growth resulting from Exxon's development in Guyana, which caused the stock to rise more than 35%, did not push up the stock price.
“In particular, international refining performance was weak and we were unable to capture strength in refining margins due to high delivery times,” said Kim Fastier, head of European oil and gas research at HSBC Holdings.
One bright spot for Exxon was operating cash flow of $14.7 billion, $1 billion more than expected. The company still has approval from the Federal Trade Commission to acquire Pioneer Natural Resources for $60 billion in the second quarter.
Read more: Exxon expects FTC to approve Pioneer deal by mid-year, CFO says
“The FTC has conducted a very thorough investigation and we are confident that competition issues will not prevent a transaction,” CEO Darren Woods said on a call with analysts. “We continue to work constructively with the FTC.”
Exxon late last year started production ahead of schedule at its third development in Guyana, Payara, adding 220,000 barrels per day, allowing it to profit even if oil prices fall to the $35 range. .
Follow Exxon and Chevron's Q1 earnings: TOPLive
“We continue to move projects faster and on budget, and as a result, we have just had great execution in Guyana,” Michels said, adding that total production is now over 600,000 barrels per day and expected to grow in 2023. This is up from 440,000 barrels in the last three months of the year.
Exxon's performance in Guyana highlights why arch-rival Chevron wants to enter the project by acquiring Hess Corp., in which it owns a 30% stake, for $53 billion. Exxon claims it has a right of first refusal on the Hess stock, but Chevron says it doesn't have that right because its deal is a merger.
Mr. Michels said the arbitration process was still in the “very early stages.” He said both sides selected an arbitrator to serve on the three-person committee. This week, Hess extended the end of his contract with Chevron by six months, ending in October.
Meanwhile, Chevron on Friday beat profit estimates but fell short of free cash flow. The stock price fell less than 1%.
Chevron's adjusted first-quarter earnings were $2.93 per share, beating the average Bloomberg Consensus analyst estimate by 3 cents. Crude oil production exceeded expectations at approximately 2 million barrels per day.
Chevron's Permian Basin production fell from 867,000 barrels per day in the final three months of 2023 to the equivalent of 859,000 barrels per day during the period. Chief executive Mike Wirth had warned that production would temporarily fall but would recover in the second half of the year.
–With assistance from David Wethe, Mitchell Ferman, and Ruth Liao.
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