By the end of this week, we should have all the earnings releases from the world’s six integrated oil and gas supermajors. These companies, in descending order by size,  ExxonMobil (NYSE: XOM), Shell (NYSE: RDS-A), Chevron (NYSE: CVX), Total (NYSE: TOT), BP (NYSE: BP), and Eni (NYSE: E).

While I will cover the results for each of these in The Energy Strategist, today I want to discuss the behemoth of the group, ExxonMobil, which released its earnings last week.

ExxonMobil reported fourth-quarter earnings of $1.7 billion, down 40% year-over-year. The bottom-line number was interpreted variously by media outlets, with some calling it a huge miss and others stating that the company had beaten estimates. The discrepancy lies in a $2 billion impairment the company recorded.

Investors need to understand the nature of this impairment. It stems from an issue discussed here often: the value of proved reserves. Simply put, these are reserves that can be recovered with reasonable certainty at prevailing energy prices. In this case, the impairment related to $2 billion of previously booked natural gas reserves in the Rocky Mountains region of the U.S.

ExxonMobil decided to take the impairment after it completed an asset recoverability study during the quarter and determined those assets no longer met the “proved reserves” criteria. As a result they came off the books, but remain in the company’s resource portfolio.

Thus, the $2 billion wasn’t an actual loss during the quarter. It is possible that as long as current conditions remain these resources may not be developed. This is why some outlets chose to ignore the fact that the impairment wasn’t a cash outlay.

Excluding the impairment charge, Q4 earnings were 90 cents per share and indeed beat analysts’ consensus estimate of 70 cents per share. Upstream earnings from producing oil and gas totaled $1.4 billion, up $528 million from a year earlier.

Including the impairment, earnings were 41 cents per share, which is why some characterized them as a huge miss.

But cash flow from operations and asset sales were more than enough to cover the dividend and net investments in the business for the quarter. Cash flow from operations was $7.4 billion, up from $4.3 billion a year ago. Cash flow from asset sales was $2.1 billion, versus about $800 million in the fourth quarter of 2015.  

The impairment also affected annual 2016 earnings. Including the charge, 2016 earnings of $7.8 billion were down 51% year-over-year. Lower commodity prices and refining margins also weighed on the results. Excluding the impairment charge, full-year earnings were $9.9 billion, 39% lower than in 2015.

Despite the impairment, ExxonMobil’s future looks promising. Among other developments, the company highlighted its recent major acquisition in the Permian Basin (which we reported on last month) during its conference call. Learn which other companies are making the right moves, and know when an earnings miss isn’t really an earnings miss by joining us in The Energy Strategist.

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