Exxon Earnings: Volatility and Disruptions Take Toll, but Strategic Progress Continues

Key Morningstar Metrics for Exxon

• Fair Value Estimate
  : $156
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

Exxon reported first-quarter earnings that exceeded expectations. Earnings and cash flow were both negatively affected by timing effects from mark-to-market derivative requirements, given the high volatility during the quarter. Buyback guidance of $20 billion was unchanged.

Why it matters: The impacts of the mark to market was expected as Exxon had previously warned of them and we’ve seen them in other quarterly reports to date. Although weighing on earnings and cash flow during the quarter, they should reverse in the future. Otherwise, underlying progress is being made on its strategic plan.

• Without the timing effects and identified items, first-quarter earnings were $8.8 billion versus $4.4 billion reported. Cash flow was $13.8 billion, excluding margin postings related to derivatives, versus $8.7 billion as reported.
• Production grew to 4,594 thousand barrels of oil equivalent per day from 4,551 mboe/d last year, thanks in part to record volumes from Guyana, but fell from fourth-quarter levels of 4,988 mboe/d due to lost Middle East volumes.

The bottom line: Our $156 fair value estimate and narrow moat are unchanged. The quarter is more reflective of the volatility and disruptions than of anything specifically related to Exxon. It continues to make progress in adding high-margin volumes and reducing structural costs, putting it on track to hit its 2030 targets.

• Exxon expects second-quarter production of 4.1 to 4.3 million barrels of oil equivalent per day, assuming the Strait of Hormuz is closed the entire quarter. The impact from the closure is about 750 mboe/d relative to 2025 levels or about 15% of global production. The impact on prices from the closure should more than offset the loss of volume.
• 100 mboe/d of those lost volumes is from two Qatar liquefied-natural-gas trains, which Exxon expects to remain offline even once the start is opened.