Exxon Mobil beat estimates for quarterly adjusted earnings on Friday, helped by higher output in Guyana and the Permian Basin, though unadjusted profit dropped to its lowest level in five years due to disruptions from the Iran war that could hit production further in the current quarter.
Adjusted earnings for the first three months of the year were $1.16 per share, above the consensus estimate of $1.00 as compiled by LSEG, while net income was $4.2 billion, lowest since the first quarter of 2021, and down from $7.7 billion for the year-ago period.
The Middle East conflict has driven both US and international oil prices to well over $100 a barrel, but the effect on oil majors' profits has been uneven. Exxon, one of the most exposed, saw its production dip, while European rivals BP and Total brought in higher profits from trading operations.
About 20 per cent of Exxon's oil and gas production is located in the Middle East, one of the highest exposure rates among the majors.
Chevron, the number two US oil producer, said on Friday that less than five per cent of its production comes from that region.
Exxon's worldwide production was 4.59 million barrels of oil equivalent per day for the quarter, up marginally from a year ago, but down nearly eight per cent from five million bpd in the fourth quarter, due largely to ongoing disruptions to the shuttered Strait of Hormuz, used to transit one-fifth of the world's oil and gas supply.
If the strait closed for the rest of the second quarter, Exxon said production would fall between 4.1 million and 4.3 million barrels of oil equivalent per day, which would include lower Middle East production of 750,000 bpd relative to 2025.
If the waterway were to reopen immediately, second-quarter production could be up to 4.7 million bpd, the company said.
Exxon's adjusted figure excludes a $700 million loss from cargoes that could not be delivered as a result of the unprecedented supply disruption caused by the conflict, which began at the end of February.
Exxon CEO Darren Woods said the company would stick to its current path of focusing on what it considers high quality production.
"The conflict in the Middle East contributed to a highly volatile operating environment. Supply tightened. Logistics became more complex. Markets moved quickly. That kind of environment does not change our strategy, it proves its effectiveness," he said in prepared remarks.
During a conference call with analysts later on Friday, executives will likely receive questions about the timeline for repairing damaged assets in the Middle East, which also accounts for a large portion of Exxon's liquefied natural gas portfolio.
The oil producer holds stakes in two liquefied natural gas facilities in Qatar that were hit by Iranian attacks.
Exxon said the LNG trains will remain offline after the strait is reopened and it will work with operator QatarEnergy to find ways to accelerate the repairs.
"We expect questions to arise today around XOM’s plans to potentially increase activity," RBC Capital Markets analyst Biraj Borkhataria said in a note. "We expect a neutral reaction to today’s results."
Exxon's most significant upstream assets are the Permian Basin and offshore production in Guyana. Exxon Chief Financial Officer Neil Hansen said Guyana production hit a new record, and that the company is continuing to grow in the Permian. That helped offset disruptions in the Middle East.
Exxon previously disclosed a multi-billion-dollar hit from the timing effects that it expects to unwind in subsequent quarters. Earnings were $2.09 a share when excluding losses from financial derivatives.
Exxon uses financial derivatives to mitigate the risk of price changes during the time it takes to deliver cargoes to customers. The value of the physical shipment is not reflected in earnings until the transaction is complete, creating a timing impact, the company said.
"In general, it takes a few months for that to unwind," Hansen said in an interview, though he added it is hard to predict the potential for further timing effects, which will depend on how commodity prices change.
Upstream earnings, including identified items, were $5.7 billion, up 63 per cent from the previous quarter and down 15 per cent from last year.
The downstream unit registered a loss of $1.3 billion compared with a profit of $827 million last year. Excluding all timing effects, Exxon said downstream profits were $2.8 billion.
Hansen said the underlying business was resilient and that, excluding all timing impacts and undelivered cargoes, net income grew compared to the previous year.
Exxon's free cash flow was $2.7 billion during the first quarter, down from $8.8 billion in the year-ago period. The company paid $4.3 billion in dividends and repurchased $4.9 billion worth of shares during the first quarter.
Cash capital expenditures totalled $6.2 billion, in line with the company's full-year guidance.
(Reporting by Sheila Dang in Houston; Editing by Nathan Crooks, Muralikumar Anantharaman and Barbara Lewis)