Lousy Shale Economics: Financial Troubles Continue At ExxonMobil

After reporting lower than expected earnings, ExxonMobil’s (XOM) stock price sold off on Friday. The company blamed poor performance on reduced production volumes and a weaker oil price. However, the real culprit will turn out to be Exxon’s big move into the Great U.S. Shale Oil Ponzi Scheme.

As I mentioned in my recent article, ExxonMobil US Oil & Gas Financial Train-wreck: Producing Shale Is Destroying Its Bottom Line ExxonMobil U.S. Oil & Gas Financial Train-Wreck: Producing Shale Is Destroying Its Bottom Line , the company will continue to spend a great deal of capital with little financial reward. So, it wasn’t a surprise to see Exxon’s Q1 2019 earnings decline by $3.6 billion compared to the previous quarter… even though U.S. oil production had increased.

While weaker earnings were experienced across all of the company’s sectors, upstream (oil & gas wells), downstream (refining and marketing products) and chemical, the big RED FLAG was in the U.S. oil and gas sector.  According to Exxon’s Q1 2019 Earnings Release, the company invested $2.5 billion in CAPEX (capital expenditures) on its U.S. oil and gas wells, to earn a paltry $96 million in earnings:

Now, compare the miserable U.S. upstream earnings to Exxon’s International upstream earnings of $2.78 billion on $2.8 billion of capital expenditures. ExxonMobil will likely invest close to $10 billion in CAPEX on just its U.S. upstream sector (spent over $5 billion of CAPEX past two quarters) this year, and if oil prices fall, it will impact their earnings quite negatively.

This next chart shows how much money Exxon is investing in its U.S. oil and gas sector each quarter:

We can see that Exxon ramped up capital expenditures in its U.S. oil and gas properties (mostly shale) significantly since the beginning of 2018.Over the past year, the company has spent $8.8 billion to increase production by 77,000 barrels per day.That is one hell of a lot of money to increase U.S. oil production by 15%, and Exxon will have to invest a massive amount more if it wants to reach its goal of 600,000 barrels per day in the Permian by 2024.

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