Exxon Mobil signalled on Wednesday that first quarter earnings could decline from the previous quarter, with an expected multi-billion dollar hit related to financial hedging outweighing higher oil and gas prices triggered by the Iran war.
The top US oil producer also said it will see higher profitability in later quarters when derivative contracts are settled with physical shipments.
In a regulatory filing, Exxon said earnings in the upstream business could have a lift of about $1.4 billion compared to the fourth quarter, driven by higher oil prices, which skyrocketed as much as 65 per cent following the start of the war on February 28.
Downstream earnings, however, could be negatively impacted by around $5.3 billion due to the so-called timing effects connected to derivative contracts and cargoes that were not delivered due to the war.
"This is clearly a messy release with a number of Exxon-specific factors related to current events in the Middle East impacting earnings," Biraj Borkhataria, an analyst with RBC Capital Markets, said in a research note.
The earnings snapshot points to first quarter earnings of about $5 billion or $1.20 per share, Borkhataria estimated.
Adjusted earnings in the fourth quarter were $7.3 billion or $1.71 per share.
The "unusually large, negative timing impact" is temporary and results from accounting rules for the trading program, Neil Hansen, Exxon's chief financial officer, said in a statement.
Like other oil firms, Exxon hedges the sale of crude, natural gas and refined products using financial derivatives in order to mitigate the risk of price changes during the time it takes to ship cargoes to customers, which could take weeks between the US and Asia.
The value of the physical shipment is not reflected in earnings until the transaction is complete, the company said in the filing.
"These impacts will unwind over time and result in net-positive profit once the underlying transactions are complete. These are sound trades and the profitability that will result from them will be material," Hansen said.
The company said it will record an impairment of between $600 million and $800 million because supply disruptions prevented the physical shipment of cargoes associated with some hedges.
Exxon said its first-quarter oil and gas production will be six per cent lower due to the war compared with the fourth quarter, when it produced five million barrels of oil equivalent per day.
Assets in Qatar and the UAE accounted for 20 per cent of Exxon's global oil production in 2025, the company said in the filing.
The war has caused a massive disruption of energy supplies as the Strait of Hormuz, a conduit for a fifth of global energy flows, has been effectively closed.
Benchmark Brent crude prices averaged $78.38 per barrel during the first quarter, up 24 per cent from the previous three months, according to LSEG data.
Exxon will report its full first-quarter results on May 1. Investors closely watch the company's earnings snapshot, which details the market factors that impacted earnings, for signals about how the broader oil sector will perform when results are released next month.
(Reporting by Sheila Dang in Houston; Editing by Nathan Crooks, Will Dunham and Lincoln Feast)
