While oil prices soared in the first quarter, ExxonMobil’s profits fell. This is what happened.

Oil prices skyrocketed during the first quarter due to the war with Iran. Brent oil, the global benchmark, rose from $60 a barrel at the beginning of the year to more than $100 a barrel at the end of March. While higher oil prices benefit oil producers like ExxonMobil (NYSE: XOM)The global energy giant’s profits plummeted during the first quarter.

Here’s a closer look at the oil stocks first quarter results.

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Digging deeper into Exxon’s first quarter

ExxonMobil reported $4.9 billion, or $1.16 per share, in adjusted earnings for the first quarter. That was down from $7.3 billion in the fourth quarter and $7.7 billion in the same period a year earlier, even though oil prices and refining margins were higher this year. On a more positive note, Exxon’s earnings beat analyst expectations of $0.98 per share.

Two factors impacted their results: supply disruptions and timing. The company’s operations in Qatar and the United Arab Emirates generated lower volumes due to the Closure of the Strait of Hormuz and Iran’s attacks on energy infrastructure in the Persian Gulf. The company also experienced operational disruptions in Kazakhstan and the United States due to Winter Storm Fern. Exxon partially offset those impacts with higher production in Guyana (which set a new quarterly record) and the Permian Basin. Overall, its global production averaged around 4.6 million barrels of oil equivalent per day (BOE/d), down from nearly 5 million BOE/d in the fourth quarter.

The other factor that affected Exxon’s earnings was the estimated temporary effects on its derivatives positions. This scheduling issue, which will be resolved in future periods upon physical delivery of the underlying products, had an unfavorable impact of $3.9 billion. Without this timing issue and another $700 million identified item due to supply disruptions in the Middle East, Exxon’s profits would have been $8.8 billion for the quarter.

A strong underlying quarter

While supply and scheduling disruptions clouded Exxon’s quarter, the “underlying business delivered strong results,” CEO Darren Woods noted in the first-quarter earnings news release. This is due to the company’s transformational strategy, which it has been executing since 2018. This strategy has increased its advantageous volumes (lower-cost, higher-margin assets such as Guyana and the Permian Basin), optimized its operations, reduced structural costs ($15.6 billion in cumulative savings since 2019) and strengthened its earnings power. Advantageous volume growth added $840 million to its bottom line in the first quarter, while its structural cost savings strategy delivered an increase of $430 million.

Exxon plans to continue executing this proven strategy for years to come. It expects to generate $25 billion in earnings growth and $35 billion in cash flow growth by 2030, at the same prices and margins as the 2024 level. That puts it in a strong position to continue increasing shareholder value through supply disruptions and across market cycles.

An all-weather oil stock that will last long term

The war with Iran has had some negative impacts on Exxon’s operations and financial results, which will likely continue into the second quarter. However, its underlying business continues to perform exceptionally well. It remains on track to deliver significant earnings and cash flow growth through 2030 and beyond as it navigates the inevitable ups and downs of the oil industry. That makes it an ideal oil reserve to conserve long term.

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Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

While oil prices soared in the first quarter, ExxonMobil’s profits fell. This is what happened. was originally published by The Motley Fool