January 9th, 2024 | 07:00 CET
ExxonMobil, Prospera Energy, Shell - Falling profits and new opportunities in black gold
The fall in energy prices led to a significant drop in inflation. Consequently, the colossal profits of oil giants, such as Chevron, Exxon, and PB, also melted away. As a result, the stock prices of these companies corrected, potentially providing long-term investors with a new buying opportunity. Many experts agree that in the long term, the decline in black gold is likely just a temporary dip in its overall upward trend, which should lead to significantly higher price targets in the coming years.
time to read: 3 minutes
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Author:
Stefan Feulner
ISIN:
EXXON MOBIL CORP. | US30231G1022 , PROSPERA ENERGY INC. | CA74360U1021 , Shell PLC | GB00BP6MXD84
Table of contents:
"[...] When we acquire something, we want to make sure that the acquisition fits with our strategy and has the potential to be successful for our shareholders. [...]" John Jeffrey, CEO, Saturn Oil & Gas Inc.
Author
Stefan Feulner
The native Franconian has more than 20 years of stock exchange experience and a broadly diversified network.
He is passionate about analyzing a wide variety of business models and investigating new trends.
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ExxonMobil with profit warning
The leading oil company in the United States had to announce a severe setback last week. Due to write-downs on Californian assets of around USD 2.5 billion and falling energy prices, profits for the year as a whole will be weaker than forecast.
Exxon currently expects an operating result of around USD 8.9 billion, representing a decline of 30% compared to the USD 12.7 billion profit of the previous year. It is also 3% lower than the result for the third quarter.
Exxon expects an impairment charge of USD 2.4 billion to USD 2.6 billion for oil and gas properties on the Southern California coast. Sable Offshore, a company formed in 2020, agreed to pay USD 643 million for the assets more than a year ago.
"Ongoing challenges in the state regulatory environment have hindered progress in restoring operations at the Company's Santa Ynez facilities near Santa Barbara," a company statement said.
The write-down marks another move by major oil companies to pull out of California due to largely depleted oil fields and the state's environmental and regulatory policies. After an initial sell-off, Exxon shares stabilized over the course of the week and, at USD 78.81, are trading below a prominent resistance area of USD 79.24.
Prospera Energy - Doubling of production in sight
In contrast to the major oil multinationals, which are expecting falling profits in 2023, things went according to plan for the Western Canadian energy company. In 2021, Prospera Energy restructured and embarked on a three-phase process aimed at prioritizing cost-efficient operations while increasing production capacity and reducing liabilities. Prospera is currently implementing Phase 2 of the restructuring process, the horizontal transformation, which is designed to accelerate growth and unlock the significant remaining reserves in the ground, approximately 400 million barrels. In addition to optimizing processes, the Canadians who hold properties in Saskatchewan and Alberta are planning an active acquisition strategy. The product mix is to be further diversified with a share of 50% light oil, 40% heavy oil and 10% gas.
Valued at CAD 37.95 million, the explorer achieved gross peak rates of 1,800 barrels of oil equivalent in the past financial year, excluding production from recently drilled and completed horizontal wells and production shut-in for drilling. Prospera's total production capacity is currently 2,200 barrels of oil equivalent, with plans to optimize it in the coming weeks.
By the end of the current year, Prospera Energy plans to implement robust development and acquisition strategies to achieve production rates of 5,000 barrels of oil equivalent. The successfully concluded financial year is only reflected to a limited extent due to the general weakness of the oil market. The share price recovered significantly from its lows to CAD 0.09. However, there remains a potential of nearly 100% compared to the previous year's high.
Shell - Significant write-downs
Similar to the US giant ExxonMobil, the London-based oil company Shell is also forced to recognize impairment losses in the final quarter of 2023, in the range of USD 2.5 to 4.5 billion, which is likely to result in a significant downward revision of the annual result.
At Shell, this is attributed to macroeconomic developments and portfolio decisions, such as the sale of chemical and production facilities in Singapore. In contrast, the gas trading sector performed better than expected, which could at least partially offset the lost profits.
According to a company statement, operating cash flow was impacted by a charge of USD 900 million related to the timing of payments for emissions.
Shell will announce the final figures on February 1. In the wake of the publication, Shell shares lost over 2% to EUR 29.73.
Value adjustments by oil giants ExxonMobil and Shell depressed share prices. In the long term, however, experts believe that share prices will continue to rise, meaning that profits are also likely to increase. Prospera Energy is planning a significant increase in production rates for the current financial year.
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