HOUSTON, April 26 (Reuters) - Exxon Mobil Corp ( XOM )

on Friday missed analysts' estimates with a 28% year-on-year

drop in first quarter profits as weaker refining margins and

lower natural gas prices offset volume gains.

The largest U.S. oil company, which is in the process of

closing a $60 billion deal for top shale oil producer Pioneer

Natural Resources ( PXD ), posted first-quarter earnings of

$8.22 billion, or $2.06 per share, compared to an $11.43 billion

net profit a year ago.

Profit per share fell 6% shy of Wall Street analysts'

consensus, according to LSEG estimates.

The results were the second highest for a first quarter in

the past decade, behind the year-ago period, said Chief

Financial Officer Kathryn Mikells. The miss was due in part to

tax and inventory balance sheet adjustments, she said.

"Every quarter, we have some pluses and minuses associated

with these one-off items", she said. "Sometimes they are

favorable, this time they were unfavorable."

Weaker energy margins cut operating profit by about $2.6

billion compared with a year ago. Global oil prices were largely

flat against a year ago while natural gas prices fell sharply.

U.S. gas futures traded 20% lower at the end of the quarter

compared to a year-earlier.

Results were boosted by lower costs and higher volumes from

Exxon's Guyana operations. Hess a day earlier flagged the

increase in output in the South American country with a 70%

year-over-year output gain.

Exxon's capital spending last quarter was the lowest in

seven quarters and its streamlining of operations expanded what

it calls structural cost savings by $400 million.

It added $1.7 billion in cash last quarter to end the period

with $33.3 billion.

DEAL CLOSING

Exxon's acquisition of Pioneer is expected to wrap up in

coming weeks. Exxon has started the integration process with a

team working separately from the business, Mikells said.

"We are feeling really good about our interactions with the

Pioneer people and making sure that we put our best foot forward

as we close this transaction," she said.

The all-stock deal for Pioneer would make Exxon the largest

oil and gas producer in the top U.S. shale field, doubling

output there to more than 1.3 million barrels of oil equivalent

per day. Exxon forecasts the combination will allow it to reach

2 million barrels per day in 2027.

That deal was the largest among a series of blockbuster

combinations in recent years, as wildcatters including Pioneer,

Endeavor Energy and CrownRock were acquired by bigger companies

which sought to lock in years of future production and achieve

economies of scale from expanded operations.

Pioneer's shares this week traded at $275 apiece, a 9%

increase to their October deal value.

HESS ARBITRATION

Exxon is in a dispute with Chevron ( CVX ) and Hess over assets in

Guyana, home to the biggest oil finds in the past two decades.

In face of Chevron's ( CVX ) $53 billion offer for Hess, Exxon has

claimed preemption rights over Hess' Guyana assets. That claim

is being considered by an international arbitration panel.

Hess' 30% stake in the Guyana joint venture is the prize in

Chevron's ( CVX ) proposed takeover.

Mikells said Exxon and partner CNOOC Ltd will "evaluate our

options" if the arbitration panel agrees that they have the

first of first refusal to a sale.

"It is all about clarifying our contractual rights, period,"

she said.