ExxonMobil Makes 'Eenie, Meenie, Miney, Mo' Obsolete

If the early returns from big oil's earnings season are any indication, investing in the group by employing the "eenie, meenie, miney, mo" method is a thing of the past. While ExxonMobil's (NYS: XOM) results were disappointing, across the pond, Royal Dutch Shell (NYS: RDS.B) removed all doubt that its reserves caper of several years ago is behind it, as it turned in an inarguably solid quarter.

While one quarter doesn't constitute a trend, it's become progressively clearer that we've moved beyond the days when all the integrated majors were largely affected by similar pricing and margin trends and the first company out of the reporting shoot generally set a broad tone for the sector. This quarter we've heard from ConocoPhillips (NYS: COP) , which is undergoing a massive restructuring, rendering its numbers comparatively meaningless. That lack of clarity was then followed by the essentially diverse posting of the two above-named bigger companies.

What'd Exxon do?
Exxon, which lugs around a market capitalization near $405 billion, almost $200 billion more than either Shell or Chevron (NYS: CVX) , the second-largest U.S.-headquartered member of the group, reported net income of $9.45 billion, or $2 per share, down from the year-ago $10.65 billion, or $2.14 per share. And while revenues grew by 8.8% to $124.05 billion, its per-share earnings number failed to meet analysts' expectations by a yawning $0.09.

Conversely, Shell was able to announce proudly that its clean cost of supplies -- essentially "internationalese" for net income minus the effects of inventories and other non-operating items -- reached $7.28 billion. That's a 16% hike year over year from $6.29 billion in the first quarter of 2011 and topped the consensus expectation of $6.75 billion.

Why the 180-degree directional difference? Quite simply, while both companies have figuratively "taken gas" of late, ExxonMobil has done so to a far greater degree -- 14% -- in the U.S., where gas prices appear to be headed for next-to-nothing. Shell, on the other hand, which will likely celebrate 2012 as the first year in which its total natural gas production tops its oil output, produces only 5% of its gas in our country.

The sum of its parts
Looking more closely at its sector results, Exxon's oil equivalent production decreased by 5%. However, correcting for the effects of entitlement volumes (which tend to be reduced as prices increase), OPEC quotas, and jettisoned properties, the decline was but 1%. Nevertheless, reported results from upstream operations fell 10% to $7.8 billion. Downstream profits jumped by 44%, while the chemicals unit experienced a profit slide of 54% reduction year over year.

Nevertheless, while all the quarter's differing results tend to add to Shell's already compelling story, I wouldn't willy-nilly toss away Exxon, which is raising its dividend by a meaningful 21%. Indeed, while I'd like to see the company hit the brakes, at least lightly, on U.S. gas production until prices begin to recover, there are other noteworthy strengths at the company for those with investment horizons beyond the short term.

Lots going on behind the scenes
For starters, the just-announced quarter was something of a victim of timing. The company has new projects in Angola and Nigeria scheduled for start-up this year. And a little farther out, it has reported impressive discoveries in Romania's portion of the Black Sea and offshore Tanzania. The latter may contain about 5 TCF of recoverable gas.

You're also familiar with the company's much-ballyhooed exploratory joint venture with Russia's big, state-controlled oil company, Rosneft. While I'm admittedly slightly jaundiced about the ability of Russian authorities to keep their cotton-pickin' hands away from the project, ExxonMobil also might emerge from the deal with the fragrance of a rose. It's worth mentioning that Vladimir Putin recently agreed to redo his government's heretofore essentially confiscatory approach to taxing such projects.

Finally, while it's somewhat longer-term (as are most things in the all-important energy arena), I'm noting few -- to say the least -- projections about how our domestic gas picture might change dramatically in the coming years. As you know, U.S. gas trades at a fraction of the prices that prevail in much of the rest of the world, where liquefaction is necessary to facilitate transportation.

Do you believe for a minute that the U.S. movement toward liquefaction capability wouldn't alter domestic prices materially? It's worth noting that Cheniere Energy (ASE: LNG) is making strides in that direction, and David Rosenthal, Exxon's vice president of investor relations, admitted Thursday that the company is "studying" the prospects for liquefying its U.S. natural gas and shipping it overseas.

That change would likely result in something of an arbitrage effect that could bring U.S. and world prices closer together. I'm referring to somewhere between the approximately $2.15 per million British Thermal Units that our gas currently fetches and the approximately $16 that our Japanese friends must pay for LNG. In the interim, however, U.S. levies are expected to trend even lower.

The Foolish bottom line
While I'm inclined to be somewhat more attentive to Shell or Chevron in the short run, it's clear that many of ExxonMobil's strengths were obscured by timing circumstances in the past quarter. I'm therefore not compelled to sell it short -- literally or otherwise. At the very least, I'd recommend that you join me in monitoring it closely, including adding it to your version of the Fool's My Watchlist.

At the time thisarticle was published Fool contributorDavid Lee Smithhas lots of interest but no equity shares in any of the companies named above.Motley Fool newsletter serviceshave recommended buying shares of ExxonMobil and Chevron. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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