Exxon's Integrated Model Shows Strength
The narrow-moat firm reported strong cash flow during the quarter.
In contrast to most of its peers, Exxon reported an increase in downstream earnings to $1.6 billion from $1.5 billion last year as it was able to capture North American crude differentials to offset weakness in fuel margins. The ability to offset weak price differentials in upstream assets in Canada and the Permian through physical integration with downstream assets is a key element of differentiation for Exxon. It should continue to serve it well over the next year as differentials remain wide due to lack of pipeline capacity. Chemical earnings were a source of weakness falling to $713 million from $1.1 billion last year on lower margins and maintenance activity.
Importantly, Exxon reported strong cash flow during quarter after several quarters of relatively weak figures. Operating cash flow increased to $11.1 billion from $7.5 billion last year and $7.8 billion in the second quarter. Capital spending increased slightly, but guidance remains unchanged at $24 billion plus $1 billion-$2 billion for acreage additions in Brazil. Our fair value estimate and narrow moat rating are unchanged.
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