Exxon, Shell Earnings Add to Industry's Poor Showing
Oil giants Exxon Mobiland Royal Dutch Shell on Thursday added to the industry's worst midyear showing in years, stung by slumping global energy demand that threatens to further slow exploration and production.
For Exxon, the world's biggest publicly traded oil company, a 66 percent profit plunge for the second quarter marked its lowest result in nearly six years. The Irving, Texas-based company vowed to maintain its aggressive spending plans but acknowledged the tough economic environment has made that difficult.
Its quarterly production fell too — bad news considering it generates more than two-thirds of its earnings from oil and gas output.
"The results were very disappointing," said Brian Youngberg, an energy analyst at Edward Jones. He noted Exxon has an extensive list of projects in various stages, "but now they need to start delivering."
Production fell 6 percent for Shell, Europe's biggest oil company, and executives said more drastic steps will be taken to adjust to the downturn. CEO Peter Voser promised Thursday to cut jobs and reduce capital spending next year. He said Shell would still increase production by 2 percent to 3 percent a year through 2012, reversing 7 years of declines.
"We simply don't know when the global economy will recover, and we have to plan on the basis that this downturn could last quite some time," Voser said.
When demand does rebound, however, the reduction in spending on exploration and drilling could lead to supply shortages and prices spikes like those of 2008.
Exxon Mobil said earnings for the April-June period came to $3.95 billion, or 81 cents a share, down from $11.68 billion, or $2.22 a share, a year ago, a record at the time. Excluding one-time items, net income in the most-recent quarter amounted to $4.09 billion, or 84 cents a share.
The latest result missed the average Wall Street profit forecast by a wide margin. Analysts polled by Thomson Reuters were looking for net income of $1.02 cents a share. Those estimates typically exclude one-time items.
Revenue fell 46 percent to $74.5 billion.
The substantial profit falloff was no surprise given the steep drop in oil and natural gas prices from a year ago. Already this week, ConocoPhillips said its second-quarter profit tumbled 76 percent, while BP's net income fell 53 percent. Chevron, the No. 2 U.S. oil company behind Exxon, is scheduled to report earnings Friday.
Exxon posted the company's most meager quarterly showing since it earned $3.65 billion in the third quarter of 2003. The company, 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.
Its shares edged about 1 percent lower to $70.72 Thursday. They've traded in a range of $56.51 to $84.76 in the past year.
Exxon Mobil has said it expects to spend $29 billion on capital and exploration projects this year. In its earnings release Thursday, it said the tab for the first half of 2009 amounted to $12.3 billion, "in line with our longer term plan."
"As we look out over the rest of the year, there's probably a little more downside pressure than upside pressure" on the $29 billion target, David Rosenthal, Exxon's vice president for investor relations, said on a conference call with analysts.
On a dour note, Exxon said production on an oil-equivalent basis fell 3 percent in the most-recent quarter from a year ago.
Shell said its profit slid 67 percent to $3.82 billion, but results exceeded analysts estimates.
Voser, CEO only since July 1, said a major move to streamline Shell's operations was on schedule. He said Thursday that 150 "top managers" had been released and repeated earlier statements that there would be further "substantial" job losses among lower ranks, but didn't specify how many.
In addition, Shell said it would cut its capital expenditures in 2010 to $28 billion, from an expected $31 billion in the current year. Its shares fell 40 cents to $52.86.
This time last year crude was in the triple digits after a historic ride to almost $150 a barrel. Prices eventually dipped into the $30s in January but have doubled in recent months amid some signs of recovery from the worst recession in a generation.
Oil giants like Exxon Mobil are still notching billions of dollars in profits, but topping last year's mammoth numbers is almost unthinkable unless crude goes on another unprecedented ascent. That's unlikely given the state of the global economy.
Major oil companies are finding it difficult to get spending levels right, largely because of wild fluctuations for the price of a barrel of oil. So far this year it's been as high as $72 and as low as $33. On Thursday, the price surged above $66 a barrel after a 6 percent drop a day earlier.
"We still have two tough quarters ahead," said Fadel Gheit, an energy analyst at Oppenheimer. "We hope things start to improve in the (first quarter) of 2010."