HOUSTON Exxon Mobil Corp missed analysts' estimates on Friday with a 28% year-on-year drop in first quarter profits, as weaker refining margins and lower natural gas prices offset volume gains.

The largest US oil company, which is in the process of closing a US$60 billion deal for top shale oil producer Pioneer Natural Resources, posted first-quarter earnings of US$8.22 billion, or US$2.06 per share, compared to a US$11.43 billion net profit a year ago.

The stock was down 2% in pre-market trading to US$118.50, after reporting a profit per share of US$2.06, 6% shy of Wall Street analysts' consensus for US$2.20 per share, LSEG estimates showed.

Earnings from oil and gas production fell 14% on lower natural gas prices, and refining tumbled 67% on weaker margins and investment and tax costs. The chemicals business, however, was a standout, with earnings more than doubling on lower input costs and higher margins, the company said.

Earnings of US$8.22 billion for the first quarter ended March 31 were off 29%, compared to an adjusted profit of US$11.62 billion a year earlier.

But the results were the second highest for a first quarter in the past decade, behind the year-ago period, said chief financial officer Kathryn Mikells. The miss was due in part to tax and inventory balance sheet adjustments, she said.

"Every quarter, we have some pluses and minuses associated with these one-off items", she said. "Sometimes they are favourable; this time, they were unfavourable."

Global oil prices were largely flat against a year ago, while natural gas prices fell sharply. US gas futures traded 20% lower at the end of the quarter, compared to a year earlier.

Results were boosted by lower costs and higher volumes from Exxon's Guyana operations. Hess, a day earlier, flagged the increase in output in the South American country with a 70% year-over-year output gain.

Exxon's capital spending last quarter was the lowest in seven quarters and its streamlining of operations expanded what it calls structural cost savings by US$400 million.

It added US$1.7 billion in cash last quarter, to end the period with US$33.3 billion.

Deal closing

Exxon’s acquisition of Pioneer is expected to wrap up in coming weeks. Exxon has started the integration process with a team working separately from the business, Mikells said.

"We are feeling really good about our interactions with the Pioneer people and making sure that we put our best foot forward, as we close this transaction," she said.

The all-stock deal for Pioneer would make Exxon the largest oil and gas producer in the top US shale field, doubling output there to more than 1.3 million barrels of oil equivalent per day. Exxon forecasts that the combination will allow it to reach two million barrels per day in 2027.

That deal was the largest among a series of blockbuster combinations in recent years, as wildcatters including Pioneer, Endeavor Energy and CrownRock were acquired by bigger companies which sought to lock in years of future production and achieve economies of scale from expanded operations.

Pioneer’s shares this week traded at US$275 apiece, a 9% increase to their October deal value.

Hess arbitration

Exxon is in a dispute with Chevron and Hess over assets in Guyana, home to the biggest oil finds in the past two decades. In face of Chevron's US$53 billion offer for Hess, Exxon has claimed preemption rights over Hess' Guyana assets. That claim is being considered by an international arbitration panel.

Hess' 30% stake in the Guyana joint venture is the prize in Chevron's proposed takeover.

Mikells said Exxon and partner CNOOC Ltd will "evaluate our options" if the arbitration panel agrees that they have the first of first refusal to a sale.

"It is all about clarifying our contractual rights; period," she said.

  - Reuters