WESTERN HEMISPHERE: Exxon Profit Falls Unexpectedly as Oil Output Drops

Exxon Mobil Corp., the world's biggest oil company, reported its first profit decline in more than three years after production and crude prices fell.

Second-quarter net income dropped to $10.3 billion from $10.4 billion, the Irving, Texas-based company said today in a statement. Per-share profit, which rose to $1.83 from $1.72 as buybacks reduced the amount of stock outstanding, was 13 cents below the average of 17 analyst estimates compiled by Bloomberg.

Oil and natural-gas output declined 1 percent, to the equivalent of 4.12 million barrels of crude a day, even after Chief Executive Officer Rex Tillerson brought on new wells in Nigeria, Russia, Qatar and the United Arab Emirates. Major oil producers have struggled to keep pace with demand growth, contributing to near-record prices.

``I'm surprised production declined,'' said Douglas Ober, who manages $2.5 billion at Baltimore-based Adams Express Co., where Exxon Mobil is his largest holding. ``I would've thought they'd be higher.''

Oil prices fell 8.1 percent from a year earlier to a second-quarter average of $65.02 a barrel in New York futures trading. Exxon Mobil said its revenue dropped 0.7 percent to $98.4 billion.

The profit decline was the first for Exxon Mobil since the first quarter of 2004, when the comparison suffered because the year-earlier period included $2.2 billion in one-time gains. Before today, the company had fallen short of analyst earnings estimates only once in six quarters.

Shares Fall
Shares of Exxon Mobil fell $2.87, or 3.1 percent, to $89.92 at 9:43 a.m. in New York Stock Exchange composite trading. Before today, the stock had climbed 21 percent this year.

Production from Exxon Mobil's African wells, source of more than one-fourth of the company's crude, declined 9.2 percent because of limits imposed by nations that are members of the Organization of Petroleum Exporting Countries.

In the U.S., oil output fell almost 10 percent as decades- old fields neared exhaustion. New wells in Russia, Canada and the Middle East produced too little to make up for declines and OPEC restrictions in other regions.

The world's biggest energy companies have expanded the search for oil to the deepest oceans and remotest corners of the globe as output wanes from U.S. and European fields first tapped decades ago. Oil deposits once regarded as too far away, costly or difficult to refine into fuels are now being drilled as easier-to-reach reserves disappear.

Access to Fields
The search for new fields has been hampered by governments that won't allow foreign companies to harvest their oil and regimes in Venezuela and Russia that have forced oil companies to cede control of some projects.

The failure of energy companies to find new sources of oil fast enough to keep up with demand will force prices higher, said Ryan King, who helps manage $1.5 billion at Rafferty Asset Management LLC in New York.

``All of this means oil is going to $80 a barrel,'' King said.

Exxon Mobil follows Europe's Royal Dutch Shell Plc and BP Plc and Houston-based ConocoPhillips in reporting second-quarter results. BP on July 24 said its net income rose 1.5 percent to $7.38 billion, while Shell today reported an 18 percent gain, to $8.67 billion.

ConocoPhillips, the third-largest U.S. oil company, yesterday posted a 94 percent drop in net income, to $301 million, because the producer wrote off assets in Venezuela that were seized by that country's government. Profit excluding the Venezuela writedown exceeded analyst expectations.


All of the companies had declines in production. San Ramon, California-based Chevron Corp., the No. 2 U.S. oil company, is scheduled to report its results tomorrow.

Gas futures averaged $7.655 per million British thermal units, 15 percent higher than a year earlier, in the second quarter. Oil and gas sales account for more than two-thirds of Exxon Mobil's profit.

Exxon Mobil pumps more oil than every member of the OPEC except Saudi Arabia and Iran. The company's annual sales exceed the gross domestic products of most of the world's nations, including Indonesia, Poland, Venezuela and Norway.

Exxon Mobil drilled more than seven miles to reach a subsea oil field off Russia's Pacific coast in April, the longest well ever bored. The 37,016-foot (11,282-meter) well tapped the Chayvo field, part of Exxon Mobil's $17 billion Sakhalin-1 project.

Chayvo and its sister fields, Oduptu and Arkutun-Dagi, hold an estimated 2.3 billion barrels of crude and 17.1 trillion cubic feet of natural gas.

Via: Bloomberg
by Joe Carroll

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