Something good is brewing in the oil and gas market, and you can see it in ExxonMobil's (XOM -0.08%) most recent earnings result. Even though commodity prices are up slightly and the company's production hasn't changed much, earnings continue to improve as management implements cost cuts across the business. 

That certainly helps today, but long-term investors should be much more excited about the next several years as the company continues to find new, low-cost oil sources that should ensure better results down the road. Let's look at Exxon's most recent results, as well as some of the new deals the company inked this past quarter. 

Oil platform in arctic waters at sunset.

Image source: Getty Images.

By the numbers

Metric Q3 2017 Q2 2017 Q3 2016
Revenue $66.2 billion $62.8 billion $58.6 billion
Net income $3.97 billion $3.35 billion $2.65 billion
EPS $0.93 $0.79 $0.63
Operational cash flow $7.5 billion $6.9 billion $5.3 billion

Data source: ExxonMobil earnings release. EPS= earnings per share.

Perhaps the most encouraging aspect of ExxonMobil's most recent earnings release is that just about every business segment performed relatively well. Higher oil and gas prices led to a vastly improved upstream performance, while refining margins improved and chemical margins remained rather strong. Also, those results don't include the petrochemical facility ExxonMobil purchased last quarter, so we can expect those results to improve considerably in the next quarter. 

The one region where ExxonMobil's results leave something to be desired is with its U.S. upstream business, which continues to produce losses. This past quarter, that loss narrowed to $238 million, but that's more than two years of negative results. Investors can hope that the company will be able to use its Permian Basin production to start offsetting losses from legacy assets.

XOM earnings by business segment for Q3 2016, Q2 2017, and Q3 2017. Upstream earnings were double this time last year and other segments post modest growth.

Data source: ExxonMobil earnings release. Chart by author.

The highlights

  • ExxonMobil's overall production slipped for the second quarter in a row as the company averaged 3.88 million barrels of oil equivalent per day. Compared with the prior year, though, this was a 2% increase. The declines compared with the prior quarter all come from the natural gas side of the business, as liquids production increased.
  • Continuing its trend of large offshore discoveries in Guyana, ExxonMobil announced a fifth discovery at its Turbot well. No official reserve estimates were given, but the discovery is 30 miles from its planned Liza project and could potentially be a tie-in for later phases. 
  • The company also continued to build its position in the Permian Basin, as it acquired an additional 22,000 acres in the Delaware and Midland basins, as well as a crude oil terminal in the Delaware basin that will be used to handle and transport crude oil and condensate from the company's holdings there to Gulf Coast refineries. 
  • Management estimates that shale production from the Permian Basin will grow 45% annually until 2020 and should produce as much as 800,000 barrels per day by 2025. 
  • Management also announced it has acquired over 1.25 million acres of offshore blocks in Brazil, as well as a 33% stake in Statoil's (EQNR -0.67%) Carcara oil field. The Carcara field alone has a potential 2 billion barrels of recoverable oil.

What management had to say

The recurring theme that Wall Street keeps returning to with ExxonMobil and other integrated majors is the lack of cash flow to cover capital spending and dividends. As part of his prepared remarks, Executive Vice President Jeff Woodbury went out of his way to highlight that this is becoming less and less of an issue for Exxon.

As shown, year-to-date 2017 cash flow from operations and asset sales of $24.4 billion funded shareholder distributions, net investments in the business, and a reduction in debt.

In addition, we continue to generate free cash flow while selectively investing in the business and maintaining capital discipline. This quarter marks the fourth consecutive quarter where free cash flow has exceeded distributions to our shareholders since the significant drop in oil prices.

What a Fool believes

The rumors of ExxonMobil's demise seem greatly exaggerated. The company's most recent results show that it can more than handle itself in a low-crude-oil-price environment without having to go to more drastic measures such as cutting its dividend or shedding assets to merely raise cash. 

Management said it doesn't intend to buy back stock for at least the rest of 2017. Part of that has to do with some extra cash payments going out the door in the fourth quarter, and it wouldn't be surprising if the company elects to reduce its debt load more before getting back to repurchases. Overall, though, the company looks to be handling the current market, and an uptick in commodity prices will do this company well.