Exxon Mobil Corp. and Chevron Corp., the two biggest U.S. oil companies, reported gains in fourth- quarter earnings after record crude prices more than made up for declining output.
Net income at Irving, Texas-based Exxon Mobil climbed 14 percent to $11.7 billion, or $2.13 a share, the company said today in a statement. San Ramon, California-based Chevron said its profit rose 29 percent to $4.88 billion, or $2.32 a share.
Both companies set all-time highs for full-year profit, and Exxon Mobil broke its own record for net income by any U.S. corporation, at $40.6 billion. The companies also topped analyst earnings estimates, which were tempered by contracts that give oil-rich nations bigger shares of output as crude prices rise.
``The story all over oil land is one of declining production that has been more than offset by record oil prices,'' said Robbert Van Batenburg, head of research at Louis Capital Markets in New York.
The three biggest U.S. oil companies netted almost $10 million an hour combined in the fourth quarter. Houston-based ConocoPhillips, the No. 3 U.S. producer, last week said its profit climbed by 37 percent to $4.37 billion.
Oil futures traded 50 percent higher than a year earlier in the fourth quarter before topping $100 a barrel for the first time in January.
Marathon, Occidental
Marathon Oil Corp., based in Houston, yesterday reported a 38 percent decline in profit, to $668 million. Occidental Petroleum Corp. earlier this week posted a 56 percent earnings increase, to $1.45 billion, and Hess Corp. had a 42 percent gain, to $510 million.
Royal Dutch Shell Plc, Europe's largest oil company and second only to Exxon Mobil worldwide, yesterday said its net income rose 60 percent to $8.47 billion. London-based BP Plc is scheduled to report fourth-quarter earnings next week.
Chevron said additions to reserves last year replaced only about 10 percent to 15 percent of the oil and natural gas it produced. The impact of high crude prices on production-sharing contracts with host countries cut Chevron's reserve-replacement ratio by about 30 percentage points, Chief Financial Officer Steve Crowe told investors on a conference call.
Chevron fell 76 cents to $82.49 in New York Stock Exchange composite trading. Exxon Mobil fell 45 cents to $85.95, dropping along with oil and gas futures prices.
`Growth-Challenged'
``Exxon and all of the integrated oil companies are growth- challenged,'' said Brian Youngberg, an analyst at Edward Jones in Des Peres, Missouri. ``The rise of nationalism means countries are saying, `Maybe we don't need to share as much with the major oil companies.'''
Exxon Mobil said about 20 percent of its output is governed by production-sharing agreements with countries. Spokesman Henry Hubble declined to say how those contracts affected reserves.
Soaring profits for oil companies amid growing concern about an economic slowdown may revive efforts in the U.S. Congress to strip the industry of some of its earning power, said Douglas Ober, who helps manage $1.8 billion at Adams Express Co. in Baltimore. Democratic lawmakers seized on today's profit reports to criticize President George W. Bush and his Republican allies.
Net income at Irving, Texas-based Exxon Mobil climbed 14 percent to $11.7 billion, or $2.13 a share, the company said today in a statement. San Ramon, California-based Chevron said its profit rose 29 percent to $4.88 billion, or $2.32 a share.
Both companies set all-time highs for full-year profit, and Exxon Mobil broke its own record for net income by any U.S. corporation, at $40.6 billion. The companies also topped analyst earnings estimates, which were tempered by contracts that give oil-rich nations bigger shares of output as crude prices rise.
``The story all over oil land is one of declining production that has been more than offset by record oil prices,'' said Robbert Van Batenburg, head of research at Louis Capital Markets in New York.
The three biggest U.S. oil companies netted almost $10 million an hour combined in the fourth quarter. Houston-based ConocoPhillips, the No. 3 U.S. producer, last week said its profit climbed by 37 percent to $4.37 billion.
Oil futures traded 50 percent higher than a year earlier in the fourth quarter before topping $100 a barrel for the first time in January.
Marathon, Occidental
Marathon Oil Corp., based in Houston, yesterday reported a 38 percent decline in profit, to $668 million. Occidental Petroleum Corp. earlier this week posted a 56 percent earnings increase, to $1.45 billion, and Hess Corp. had a 42 percent gain, to $510 million.
Royal Dutch Shell Plc, Europe's largest oil company and second only to Exxon Mobil worldwide, yesterday said its net income rose 60 percent to $8.47 billion. London-based BP Plc is scheduled to report fourth-quarter earnings next week.
Chevron said additions to reserves last year replaced only about 10 percent to 15 percent of the oil and natural gas it produced. The impact of high crude prices on production-sharing contracts with host countries cut Chevron's reserve-replacement ratio by about 30 percentage points, Chief Financial Officer Steve Crowe told investors on a conference call.
Chevron fell 76 cents to $82.49 in New York Stock Exchange composite trading. Exxon Mobil fell 45 cents to $85.95, dropping along with oil and gas futures prices.
`Growth-Challenged'
``Exxon and all of the integrated oil companies are growth- challenged,'' said Brian Youngberg, an analyst at Edward Jones in Des Peres, Missouri. ``The rise of nationalism means countries are saying, `Maybe we don't need to share as much with the major oil companies.'''
Exxon Mobil said about 20 percent of its output is governed by production-sharing agreements with countries. Spokesman Henry Hubble declined to say how those contracts affected reserves.
Soaring profits for oil companies amid growing concern about an economic slowdown may revive efforts in the U.S. Congress to strip the industry of some of its earning power, said Douglas Ober, who helps manage $1.8 billion at Adams Express Co. in Baltimore. Democratic lawmakers seized on today's profit reports to criticize President George W. Bush and his Republican allies.
``While the oil companies are turning the American consumer upside down at the pump, shaking out every last cent, the White House is defending unnecessary giveaways and tax breaks to big oil,'' Representative Edward Markey, a Massachusetts Democrat who heads the House Select Committee on Energy Independence and Global Warming, said in an e-mailed statement.
Refining Squeeze
Fourth-quarter earnings rose even as gasoline and diesel failed to keep pace with the surge in oil prices, narrowing profit margins on fuels made from crude. The average U.S. refining margin, called a crack spread, ended December at about one-third its 2007 peak.
Chevron's refining profit dropped 79 percent from a year earlier to $204 million. Marathon, which typically derives about half of its profit from refining, got less than 1 percent from that segment in the fourth quarter.
``I came into the quarter thinking everybody was going to miss (analyst earnings estimates) because of lower refining margins,'' said Robert Goodof, who helps manage $20 billion in equities, including Exxon Mobil and Chevron shares, at Loomis Sayles & Co. in Boston. ``Going forward the refining can't be this bad. You've got to imagine better crack spreads.''.
Analysts are predicting slower profit growth this year for major oil producers. Oil futures have fallen almost 10 percent from their record high of $100.09 a barrel reached on Jan. 3, dropping amid concern over a possible U.S. recession.
Price Outlook
``Oil is due for a correction in a slowing economy,'' Goodof said.
Van Batenburg, the Louis Capital Markets research chief, said the U.S. presidential election may temper prices as oil- rich nations weigh the impact of a change in political leadership. ``These companies may have to face a pullback in prices later this year because Saudi Arabia doesn't want to have to deal with the consequences of $100 oil going into the November election,'' he said.
Demand for gasoline, diesel and other petroleum-based fuels increased by 30,000 barrels a day during the quarter in the U.S., the world's largest energy market, according to the International Energy Agency. In China, the next biggest consumer of oil, demand surged at 13 times that rate.
Refining Squeeze
Fourth-quarter earnings rose even as gasoline and diesel failed to keep pace with the surge in oil prices, narrowing profit margins on fuels made from crude. The average U.S. refining margin, called a crack spread, ended December at about one-third its 2007 peak.
Chevron's refining profit dropped 79 percent from a year earlier to $204 million. Marathon, which typically derives about half of its profit from refining, got less than 1 percent from that segment in the fourth quarter.
``I came into the quarter thinking everybody was going to miss (analyst earnings estimates) because of lower refining margins,'' said Robert Goodof, who helps manage $20 billion in equities, including Exxon Mobil and Chevron shares, at Loomis Sayles & Co. in Boston. ``Going forward the refining can't be this bad. You've got to imagine better crack spreads.''.
Analysts are predicting slower profit growth this year for major oil producers. Oil futures have fallen almost 10 percent from their record high of $100.09 a barrel reached on Jan. 3, dropping amid concern over a possible U.S. recession.
Price Outlook
``Oil is due for a correction in a slowing economy,'' Goodof said.
Van Batenburg, the Louis Capital Markets research chief, said the U.S. presidential election may temper prices as oil- rich nations weigh the impact of a change in political leadership. ``These companies may have to face a pullback in prices later this year because Saudi Arabia doesn't want to have to deal with the consequences of $100 oil going into the November election,'' he said.
Demand for gasoline, diesel and other petroleum-based fuels increased by 30,000 barrels a day during the quarter in the U.S., the world's largest energy market, according to the International Energy Agency. In China, the next biggest consumer of oil, demand surged at 13 times that rate.
Source: Bloomberg| By Joe Carroll
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