Exxon Mobil Corp. (NYSE: XOM) saw cash flow rise during the third quarter to its highest level since third-quarter 2014 and debt fall to a level not seen since late 2015 as it moved forward with developments such as those in the Permian Basin and offshore Guyana.
But entitlements and divestments brought down the company’s total production for the quarter, though liquids volumes in its Permian Basin acreage grew 57% compared to a year earlier.
The Irving, Texas-headquartered company reported Nov. 2 third-quarter earnings increased 57% to $6.24 billion, compared with $3.97 billion a year earlier. Exxon Mobil’s U.S. upstream segment saw its earnings swell to $606 million, up from a loss of $238 million. In all, upstream earnings for the quarter jumped to about $4.23 billion, up from about $1.57 billion.
“Better operational performance combined with high oil prices increased earnings and cash flow for ExxonMobil in the third quarter,” Pete Speer, Moody’s senior vice president, said in a note. “Sequential growth in oil production allowed the upstream business to take greater advantage of elevated crude prices, while higher operational uptime in its downstream business enabled the company to fully capture the strong refining margin environment.”
Like its peers, Exxon Mobil has benefited from improved oil prices. Chevron Corp. (NYSE: CVX) reported on Nov. 2 net income of $4.05 billion, up from $1.95 billion a year earlier.
West Texas Intermediate crude was trading for about $63.40 per barrel early Nov. 2. The price was less than $56 per barrel around this time last year.
“Higher prices increased earnings by $2.6 billion driven by a $19 per barrel, or 41% improvement, in crude realizations and a 30% increase in natural gas prices,” Neil Hansen, vice president of investor relations and secretary for Exxon Mobil, said on an earnings call Nov. 2.
Exxon Mobil said cash flow from operating activities increased to $11.1 billion, while debt dropped to $40 billion.
Oil-equivalent production fell 2% to 3.8 million barrels.
“However, and this is important, if you exclude the impact of entitlements and divestments, volumes increased by more than 60,000—liquids production up 6%, including 57% growth in the Permian,” Hansen said.
Liquids growth was driven by U.S. unconventional production and Hebron, which started production offshore Newfoundland and Labrador in late 2017.
But the company’s gas production fell 4% as the company focus on near-term liquids growth opportunities.
“We are very pleased with our performance in the third quarter. It was a quarter highlighted by strong operating performance, significant growth in liquids production and considerable value from our integrated business model,” Hansen said. “As a result, we delivered the highest level of cash flow from operating activities since 2014. In addition, we completed several advantaged projects and made significant progress on investments that will generate long-term accretive value for our shareholders.”
In the Permian, where Exxon Mobil added 22,000 operated acres for roughly $400 million to the company’s portfolio in third-quarter 2017, plans are progressing. The company ramped up to 38 rigs in the Midland and Delaware basins during the quarter.
“We’ve run on 58 wells in the Midland Basin and only eight in the Delaware Basin in the third quarter,” Jack Williams, senior vice president of Exxon Mobil, said noting there is more infrastructure in the Midland Basin. “Over time some of that growth is going to switch over to the Delaware Basin, but it’s just less mature.”
The company estimates its Permian Basin assets hold 9 billion barrels, including more than 5 billion barrels in the northern Delaware Basin.
Williams said the company is currently focusing on three areas in the Permian: delineating its new large acreage position, growing production and building out infrastructure in the Delaware Basin.
“We’re spending a lot of time and energy on this infrastructure buildout,” Williams said. “There’s about 200 barrels per day of well pad facilities under construction right now in addition to two major central processing facilities because we had essentially a blank canvass. On these 225,000 acres, there were not a lot of facilities out there so we’re building all of that from scratch.”
Development of oil discoveries offshore Guyana is also moving forward. At the Hammerhead discovery, the company carried out some dynamic flow testing, Williams said, but it is too early to provide EUR estimates.
The Exxon Mobil-led effort, with partners Hess Corp. (30%) and CNOOC Nexen Petroleum (25%), has led to nine discoveries. They include the play-opening Liza discovery in 2015, Liza Deep, Payara, Snoek, Turbot, Ranger, Pacora, Longtail and Hammerhead. Combined, they are believed to hold more than an estimated 4 Bboe. More exploration drilling is forthcoming.
Exxon Mobil anticipates developing the resources using five FPSOs, with a peak production of 750,000 barrels per day. The first phase, Liza 1, targets first oil in early 2020, followed in 2022 by Liza 2 and Payara after that.
“When you look at the time between discovery and this projection of the Liza 1 startup, it’s very impressive in terms of what the industry timelines typically look like,” Williams said.
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