Exxon Mobil's (XOM) Upstream Unit Likely to Drive Q2 Earnings

We expect Exxon Mobil Corporation 's XOM second-quarter 2018 results to show an improvement in earnings from upstream operations in both the domestic and international markets.

Since the upstream businesses contribute significantly to ExxonMobil's overall profits, we expect the largest publicly traded energy player to post handsome Q2 numbers. (See more in ExxonMobil to Report Q2 Earnings: Is a Beat in Store? )

Upstream Business

The core operations of ExxonMobil include upstream businesses. This segment covers the company's activities related to exploring and developing prospective oil and natural gas resources.

From the upstream operations - both in and outside the United Sates - the company reported earnings of $13.4 billion through 2017. The profits represent almost 68% of total earnings garnered during the period.

Upstream Activities' Q1 Details

Non-U.S. Operations: During first-quarter 2018, ExxonMobil reported earnings of $3.1 billion from upstream activities outside the United States. This reflected an improvement of 35.2% from the year-earlier $2.3 billion.

However, non-U.S. profit from the segment lagged the Zacks Consensus Estimate of $3.3 billion.

U.S Operations: From the domestic operations, ExxonMobil reported earnings of $429 million, showing a turnaround from the loss of $18 million in the year-ago quarter. Moreover, the profit from the U.S. operations beat the Zacks Consensus Estimate of $205 million.

Factors Driving Q1 Results: Price realizations from liquids supported upstream operations increased in the first quarter. A rise in expenses partially affected the results.

Impressive Oil Price in Q2

Per the U.S. Energy Information Administration (EIA) , the average West Texas Intermediate (WTI) crude prices for the month of April, May and June of 2018 was recorded at a respective $66.25 per barrel, $69.98 and $67.87, significantly higher than the year-ago monthly prices of $51.06, $48.48 and $45.18.

Notably, the average monthly crude pricing scenario through second-quarter 2018 was the healthiest in three years. Supply concerns emanating from Venezuela and Iran amid robust domestic economy were constantly backing oil prices .

The pricing environment of natural gas was also favorable. During the quarter, the commodity improved almost 8% .

Q2 Oil & Gas Output Projections

Natural Gas Production: The Zacks Consensus Estimate for natural gas production available for sale is at 9,535 million cubic feet per day (MMcf/D), lower than 10,038 MMcf/D in the first quarter of 2018 and 9,920 MMcf/D in second-quarter 2017.

Production of Crude & Natural Gas Liquids: The Zacks Consensus Estimate for daily net production of crude and natural gas liquids stands at 2,316 thousand barrels per day (B/D), higher than 2,216 thousand B/D in the prior quarter and 2,269 thousand B/D in the year-ago quarter.

Upstream Likely to be Healthy in Q2

Non-U.S. Operations: The Zacks Consensus Estimate for earnings after tax from non-U.S. upstream operations is pinned at $2.8 billion, higher than $1.4 billion reported in the prior-year quarter.

U.S. Operations: Also, for upstream operations in the domestic region, the Zacks Consensus Estimate for after-tax earnings is pegged at $252 million against a loss of $183 million in the year-ago quarter.

The fate of upstream business primarily depends on the prices and production of oil and natural gas. Liquid accounted for almost 57% of the company's total production through first-quarter 2018. Hence, we can say that the price and output of oil are the two key parameters that could drive results of the upstream business for ExxonMobil.

Healthy oil pricing scenario and higher expected liquid production will likely contribute to ExxonMobil's - a Zacks Rank #3 (Hold) stock - earnings in both the domestic and international markets. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Earnings & Revenue Projections

The Zacks Consensus Estimate for second-quarter earnings of $1.24 reflects growth of almost 59% year over year. Also, the consensus mark for sales of $70.3 billion indicates a 11.7% rise.

When Will Other Energy Majors Report?

Chevron CVX will likely report second-quarter 2018 results on Jul 27. Meanwhile, major energy players BP plc BP and EOG Resources, Inc. EOG are slated to report results on Jul 31 and Aug 2, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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