Exxon Mobil 4th Quarter Earnings Increase Despite One-Time Impairment Charge

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Exxon Mobil, the oil giant based in Irving, Texas, reported increased earnings for the fourth quarter of 2016 despite the one-time impairment charge of $2 billion consequent to reduction of the value of some of the company’s assets in the US.

The impairment charge was a result of the company’s valuation of some of its US assets’ potential cash flow which was determined to be less than its carrying value. These assets were largely those in the Rockies.

Not including this non-recurring aberration, the company reported Q4 Q16 earnings $3.7 billion which translate to 90 cents per share as against Wall Street projections of 70 cents per share. For the same period last year, Exxon Mobil reported earnings of $2.8 billion which translated to 67 cents per share.

Weaker profit margins on the back of low oil prices added pressure to the earnings of Exxon Mobil’s refining business for the whole of 2016. Yet, a strictly implemented regimen of controlled costs through the year contributed to the earnings increase.

Darren Wood, CEO and Chairman of the US-based oil giant said, “Financial results for the year were negatively impacted by the prolonged downturn in commodity prices and the impairment charge.” Resultantly, the share price of the company fell by approximately 1% on the last day of January.

Analysts opined that the charges component is critical and the company has actually missed the profit projections if it were to be included.

The revenue number for the 4Q16 for the company was $61.01 billion which is lower than the projected figure of $62.28 billion.

While in 2016, the company’s capital spending decreased 38% to $19.3 billion, it is expected to increase the capital spending component in 2017 especially in the exploration segment.

As compared to last year’s 4Q earnings, this year’s earnings for Exxon Mobil fell in all its 3 major divisions including chemicals, exploration and production, and refining divisions.

The company had sent out warnings in the third quarter that it might have to revise the value of its unproduced resources if low prices persisted. The company, at that time, had said that the resources they hold may not qualify as proven assets at the current value under the rules and regulations of Securities and Exchange Commission.

The price rise of liquid petroleum products over last year has been offset by lower profit margins of the company’s refining business. Since the oil price downturn which started in 2014, refining profit margins increased backed by lowered crude oil prices. However, in 2016, crude prices stabilized at around $50 per barrel resulting in weaker profit margins for many integrated oil companies like Exxon Mobil.

The operations-generated cash flow, which is a critical measuring component in the oil and gas industry, for Exxon showed positive results over last year’s figures. Operations-based cash flow for 4Q16 was $7.4 billion, an increase of $2.1 billion over 4Q15. Asset sales-based cash flow also increased. The 4Q16 figure was $2.1 billion as against that of 4Q15’s $800 million.