Dismal start for oil; Exxon still spendsThe oil industry is off to a dismal start this year, with Exxon Mobil and Marathon Oil on Thursday becoming the latest majors to report first-quarter profits plunging by half and more.
By: By John Porretto, The Associated Press , The Jamestown Sun
HOUSTON — The oil industry is off to a dismal start this year, with Exxon Mobil and Marathon Oil on Thursday becoming the latest majors to report first-quarter profits plunging by half and more.
Only last year, as crude prices soared well into the triple-digits, Exxon in particular was setting itself apart by shattering corporate profit records. Now, because of the steep drop in oil and gas prices, the industry is trying to adjust to a global recession that has crushed energy de-mand.
Oil producers large and small have scaled back spending and even canceled some projects. BP PLC, ConocoPhillips and Marathon are among the big international operators who’ve said they plan to reduce capital spending this year.
Not so for Exxon Mobil Corp., which again is separating itself from competitors by ramping up spending during the worst economic downturn in at least a generation.
As it released first-quarter earnings Thursday showing profits had tumbled 58 percent — its worst showing in more than five years — the world’s biggest publicly traded oil company also noted it increased capital and exploration spending in the same period by 5 percent.
Exxon’s capital spending this year is expected to reach $29 billion, up from $26.1 billion in 2008 when oil prices hit record highs.
Exxon’s planned outlays are a testament to the size and scope of its global businesses, which includes drilling and production projects that can cost billions of dollars and take years to complete, said Fadel Gheit, an oil analyst at Oppenheimer & Co.
“This is a company that’s not really responsive to good news or bad news,” Gheit said. “When you’re that big, you can’t have knee-jerk reactions.”
Exxon also has spent billions in recent years buying back its own shares, and the first quarter was no exception. The company said it spent $7.9 billion in the first three months of the year on share buybacks, mostly to reduce the number of shares outstanding.
Company share repurchases give individual shareholders a bigger stake in the company. But some members of Congress and others have criticized Exxon for not investing more in oil exploration or alternative energy.
In a conference call with analysts Thursday, David Rosenthal, Exxon’s vice president for investor relations, said the company has not swayed from its investment approach despite the uncertain economy. Exxon has kept a “relentless focus” on cost management and was able to trim expenses 10 percent in the first quarter from a year ago, Rosenthal said.
“We learned a long time ago if you don’t let your checkbook get out of control in the good times, you don’t have to slam on the brakes and disrupt the organization when the market turns down a little bit,” he said.
Perhaps, but the first three months of 2009 were pretty ugly for the entire oil and gas sector.
Exxon, based in Irving, Texas, said earnings for the January-March period came to $4.6 billion, or 92 cents a share, down from $10.9 billion, or $2.02 a share, a year ago. On average, analysts polled by Thomson Reuters were looking for net income of 95 cents a share.
The last time Exxon had lower earnings was the third quarter of 2003, when its net income was $3.65 billion. You’d have to go back seven years to find a first quarter with a more “meager” profit.
Just a few months ago, Exxon posted a $45.2 billion profit for all of 2008, breaking its own earnings record for a U.S. company. The oil giant, which replaced Wal-Mart atop the 2009 Fortune 500 list of largest U.S. companies, has made a habit of setting quarterly and annual profit marks in the past few years amid rising commodity prices.
Exxon, which pumps 3 percent of the world’s oil, said overall global production was roughly flat from a year ago, a better result versus recent quarters. “They’re moving in the right direction for a change,” said Brian Youngberg, an analyst at Edward Jones. “If you think back two or three quarters, they were showing pretty significant declines.”
Results for Houston-based Marathon Oil Corp. also fell below Wall Street expectations. Marathon said its first-quarter profit tumbled 61 percent to $282 million, or 40 cents a share. A year ago it posted net income of $731 million, or $1.02 a share.
Shares in both companies fell more than 2 percent. Exxon Mobil lost $1.77 to end the day at $66.67. Marathon fell 81 cents to close at $29.70.
The profit falloffs for producers were no surprise given the steep drop in oil and natural gas prices. This time last year crude was in the triple digits, in the midst of a historic ride to almost $150 a barrel. But prices spent the rest of the year retreating and have hovered around $50 a barrel since March.
Already, ConocoPhillips, BP PLC and Royal Dutch Shell PLC have reported sharply lower first-quarter earnings compared with the year-ago period.
Chevron Corp., the No. 2 U.S. oil company behind Exxon, is scheduled to report earnings Friday.