Exxon’s refining ‘shocker’ puts Rockefeller legacy in doubt

Bloomberg

Exxon Mobil Corp’s worst refining performance in almost two decades may revive questions about the so-called integrated model engineered by founder John D. Rockefeller and espoused by every CEO in the company’s 149-year history.
A surprise loss in a business line Exxon typically relies on to prop up more volatile units eroded first-quarter profit and cast doubt on the strength of the oil titan’s comeback from its annus horribilis in 2018.
In the last decade, when other oil companies spun off refining businesses to concentrate on drilling for crude, Exxon steadfastly adhered to the wells-to-retail model. The refining loss is particularly stinging for Exxon Chief Executive Officer Darren Woods, who rose through the ranks of the fuel-making side of the company rather than the oil-exploration business of his chief competitor for the top job, Senior Vice President Jack Williams, and predecessor Rex Tillerson.
Exxon’s structure “remains fundamentally str-ong,” Williams said during a conference call. It’s part of “our advantage versus the industry that’s going to help us manage through this volatility.”
The company’s fuel-making plants lost $256 million during the January-to-March period — an average of almost $3 million a day — as hefty stockpiles of gasoline squeezed margins and extensive repairs and mechanical overhauls slowed output. Exxon’s chemicals business also disappointed investors with a 49 percent slump in profit.
Exxon appeared to be “turning a corner,” RBC Capital Markets analyst Biraj Borkhataria said in a note to clients titled ‘A downstream shocker.’ “Clearly, the corner is further away than we expected and we expect this to lead to underperformance in the near term.”
The shares slumped 2.5 percent to $80.20 in New York after earlier slipping as much as 4.7 percent. Exxon’s disappointing refining and chemical results overshadowed booming crude output from wells in the Permian Basin of West Texas and New Mexico. Daily, worldwide production increased 2.4 percent to the equivalent of 3.98 million barrels from a year earlier, aided by an almost 140 percent surge in Permian output.
Per-share earnings were 55 cents, compared with the average estimate of 72 cents in a Bloomberg survey of analysts. The last time Exxon’s refineries lost money was 2009 and the first-quarter showing was the worst in data going back to 2001.
Woods’ effort to improve relations with the analyst community by providing pre-earnings guidance is off to a rocky start. After two straight quarters when estimates missed the mark by 20 percent or more, Williams, a member of the CEO’s inner sanctum of top lieutena-
nts, vowed to improve the company’s disclosures.
Prior to announcement, Wall Street expectations for Exxon had been brightening as the oil giant attempted to rebound from a disastrous first half of 2018, during which oil and gas production reached lowest in a decade. “Exxon Mobil’s disappointing Q1 results may not get much help in Q2, with large turnarounds, a still-weak environment for Chemicals and, to a lesser extent, Refining.