Exxon Mobil (NYSE:XOM) may have posted its worst earnings in 12 years but the company still handily beat analysts expectations reporting net income of $4.24 billion or $1.01 a share. Revenues came in at $67.34 billion which again were $6 billion+ ahead of expectations. Q3 earnings definitely illustrated the obvious robustness of the company’s integrated business model. Profits from the company’s downstream division (refineries) rose to over $2 billion as a result of the steep fall in oil prices since June of last year. These badly needed downstream profits offsetted the company’s drilling activities where almost $5 million a day was lost during the quarter in its US oil and gas wells alone. After Q3 earnings, does Exxon provide a sound investment for investors going forward? I believe so especially when you consider that the price of crude oil plummeted to under $40 a barrel in the third quarter. Its downstream and chemical business really picked up the mantle in Q3. I had predicted that refining profits would not have been this strong due to lower crack spreads but they really outperformed. Therefore considering where the price of oil is at the moment and the obvious benefits of Exxon’s integrated model, I believe this company is a good risk/reward play right here. Q3 earnings highlighted some interesting points that back up my assumption. Let’s discuss.

Firstly the company is definitely on a growth path (production-wise) as this can be clearly seen when comparing the similar revenues this year of Q1 ($67.6 billion) to Q3 ($67.34 billion).The average price of crude was higher in the first 3 months of this year compared to July, August and September (see chart) but that didn’t deter the company posting similar revenues this quarter.

Ever since this downturn started, this company has been relentless in cutting its operating costs. Whereas other companies in this field have had to cut cap-ex and their staff meaningfully, Exxon has been able to use its sheer size to lower costs from service providers. If you look at Exxon presently (as an oil field service company), it would make sense to lower costs to the company because of the financial muscle it has. Every company is hurting in this sector at the moment but most do not have the balance sheet of Exxon. Service companies know that Exxon will probably use this downturn to increase its acreage over time. They want this business so they will sacrifice present margin levels for future volume. For example, the company grew its position in the Permian basin in the third quarter by 48,000 acres but I expect more acreage and acquisitions from Exxon before long. Service companies also know this, which is why they will play ball with the oil major in the short term. (Exxon has saved $7 billion already this year in operating costs).