Skip to Content
Stock Analyst Update

Exxon Earnings Slide on Rare Impairment Charge

We're sticking with our fair value estimate and think the oil major will generate sufficient cash flow to cover its dividend.


 Exxon (XOM) reported a sharp decline in fourth-quarter earnings relative to a year earlier as it recorded a rare impairment charge on its upstream assets.

Earnings fell to $1.7 billion from $2.8 billion the year before, primarily because of a decline in upstream earnings resulting from the $2.0 billion impairment charge related to dry gas operations in the Rocky Mountain region. Without the impairment charge, upstream earnings actually improved from the prior year on a mix of higher commodity prices and lower operating expenses.

Production for the quarter fell 3% to 4.1 million barrels of oil equivalent from 4.2 mmboe a year earlier, but finished the full year down only 1%, with declines in natural gas production offsetting slight gains in liquids production.

As previously guided, production volumes should remain flat through 2020. However, Exxon will continue to add new volumes to its portfolio from new project startups that might not result in overall volume growth, but will deliver margin improvement over the next two years. Further, it estimates that its recent Permian acquisition could ultimately produce 350,000 barrels per day and bolster unconventional production to 20%-25% of liquids production from 12% currently.  We expect greater detail on Exxon’s production growth outlook next month during its annual analyst day. Until then, we retain our fair value estimate and moat rating.

Exxon generated sufficient cash flow during the quarter, including asset-sale proceeds, to cover capital spending and the dividend and repay debt. For the full year, Exxon ran a free cash flow deficit after the dividend, but also had large working-capital requirements, deferred tax impacts, and a pension contribution, which reduced cash flow by $8 billion but are unlikely to persist. While capital spending is set to increase to $22 billion in 2017 due to increased activity from the recent Permian acquisition, we expect Exxon to generate sufficient free cash flow to cover the dividend.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.