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Exxon [XOM
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] came in light on top and bottom line. There are many problems. Here are the highlights:
1) Production share and contract. Exxon has contracts to take oil out of the ground with many countries. When oil prices go up sharply, the host government takes a bigger share of the profits. They lose a big chunk of their production, even if they are not physically producing less. Their equity share of the production dropped.
2) They are encountering significantly higher operating costs and expenses.
3) Refining margins were squeezed. Oil is up 50 percent in the last few months, but they can't raise the price of gasoline to the same extent.
But don't they own the oil they refine? Surprisingly, they do not own most of it; they have to buy it on the open market like everyone else.
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It's true, Exxon is the largest oil processor in the world. They produces 2.5 million barrels a day, BUT they process 5.5 million barrels a day. So they are net buyers of 3 million barrels a day. On the open market. They are also a net buyer of gasoline: 1.3 m barrels a day.
What they do, however, is hugely profitable. In fact, 80 percent of their profit comes from production; downstream about 11 percent, chemicals about 9 percent.
4) No room to run. This is the biggest problem. Production decreased 5.6 percent from a year ago, even taking out the Venezuela expropriation it was down 3 percent. This highlights Exxon's inability to secure new, large resources. To an extent, this is a problem of all big oil companies, but not all: BP increased production by 5 percent, according to Fadel Gheit.
It's not for lack of money that production is lagging. The company is sitting on $41 BILLION in cash, and looking for something to do with it. They have been kicked out of Saudi Arabia, there's civil unrest in Nigeria, and the majority of the U.S. offshore (85 percent) is restricted. There's not a lot of room for them to maneuver.
Questions? Comments?





