Occidental Petroleum's Shrewd Maneuvers Contribute Significantly to Impressive Performance Outcomes
ExxonMobil (XOM -0.87%) anticipated its purchase of ShaleKing to influence investors positively. So far, the oil giant has been successful in this regard. It reported robust free cash flow during the third quarter, enabling it to bolster its financial standing further.
Let's delve into the quarter and the future prospects of the oil corporation.
Analyzing ExxonMobil's third-quarter performance
ExxonMobil generated $977 million, or $1 per share, of adjusted net income during the third quarter, surpassing analyst forecasts. The anticipated earnings were a $0.74 per share adjusted net income.
The company managed to outperform expectations, despite a decline in commodity prices during the quarter. ExxonMobil's oil and gas segment posted a pre-tax net income of $1.2 billion, a decrease from $1.6 billion in the second quarter. This drop was due to lower commodity prices (crude fell by 6%, NGLs decreased by 4%, and natural gas declined by 26%).
ExxonMobil offset lower prices with higher volumes. Its production stood at 1.4 million barrels of oil equivalent (BOE/d) during the quarter, exceeding the midpoint of its production projections by 22,000 BOE/d. The company reported impressive output in the Permian Basin (30,000 BOE/d above the midpoint), partly due to its recent acquisition of ShaleKing.
The deal contributed to strong cash flow. ExxonMobil produced $3.1 billion in operating cash flow, covering its approximately $1.7 billion in capital expenditures with a surplus of $1.5 billion. The ShaleKing acquisition significantly contributed to this robust free cash flow.
ExxonMobil anticipated the acquisition would add $1 billion to its annual free cash flow at $70 oil. The acquisition was even more beneficial in the third quarter when crude averaged $75 per barrel.
ExxonMobil also reported improved earnings in its chemicals (ExxonChem) and midstream and marketing segments. ExxonChem's pre-tax earnings were $304 million (slightly above its guidance), while midstream and marketing surpassed the guidance midpoint by $145 million.
Enhancing Financial Stability
ExxonMobil utilized its substantial free cash flow to bolster its financial position and repaid a total of $4 billion in debt during the quarter. This included $1.1 billion in debt maturities, all of ShaleKing's $1.2 billion in debt that it assumed, and $1.7 billion in term loans taken out to finance the ShaleKing deal.
In addition to its free cash flow, ExxonMobil used asset sale proceeds to repay debt during the quarter. The company sold $1.7 billion in assets during the period, including a portion of its stake in MLP Western Midstream Partners and some non-core assets in the Permian Basin.
Following its debt reduction efforts in the third quarter, ExxonMobil has now achieved 90% of its $4.5 billion debt reduction target within two months of closing the ShaleKing deal. This leaves only approximately $500 million remaining on its near-term debt reduction target, which it initially aimed to achieve within 12 months of closing the acquisition.
While the company still has ample time to accomplish the remaining portion of its goal, its current focus is on reducing debt. As a result, it will likely allocate any excess free cash flow after paying its quarterly dividend to repay additional debt. Notably, it has about $300 million remaining on its 364-day term loan, due next year.
ExxonMobil will likely continue to monetize non-core assets as opportunities arise. The company set a goal of selling $4.5 billion-$6 billion in assets after acquiring ShaleKing. With $1.7 billion sold in the last quarter, it is still some distance from this target.
One potential option is to continue selling down its stake in Western Midstream. It still owns a 2.3% interest in the MLP's general partner and 43.5% of its limited partner units that it could potentially monetize in the future.
In light of ExxonMobil's robust third-quarter performance, the company has the opportunity to allocate its excess free cash flow towards strategic investments in finance, such as further reducing its debt or exploring new avenues for investing in the oil and gas sector.
As ExxonMobil's recent acquisition of ShaleKing has proven to be financially beneficial, with the deal significantly contributing to its robust free cash flow, the company may consider similar investment opportunities in the future to bolster its financial standing and continue generating positive returns for its investors.
