ExxonMobil Posts 23% Profit Fall in Q4

Profits Plummet for ExxonMobil

United States supermajor ExxonMobil has posted a 23% profit fall in the fourth quarter on lower refining and fuel margins and lower natural gas realisations. Earnings excluding special items were US$6,050 million, a decrease of 23% from US$7,820 million posted in the same quarter of 2008, resulting in earnings per common share (assuming dilution of US$1.27), down 18% year-on-year (y/y). ExxonMobil's fourth-quarter financial results slightly bettered expectations on Wall Street, where investors were expecting earnings-per-share of US$1.19, and this was partially due to higher crude oil prices during the quarter and lower corporate and financing expenses. Higher prices were reflected in a rise in revenues, which came in at US$89,841 million, up from US$84,696 million in the final quarter of 2008. Despite the relatively unfavourable operating environment ExxonMobil increased its capital and exploration expenditure, which came in at a hefty US$8,263 million for the quarter, an increase of 21% y/y. This was helped by the US$41-billion agreement signed with XTO Energy, aimed at strengthening the supermajor’s position in the unconventional gas sector of the United States. On the operational side ExxonMobil's performance was positive, seeing a modest 2% increase in oil-equivalent production, which excluding the impacts of entitlement volumes, OPEC quota effects, and divestments meant production was up by over 3%. Most of the production increase came from the gas sector where output rose to 10,717 mmcf/d, up 868 mmcf/d from 2008 due to the ramp-up of projects in Qatar. Liquids production remained essentially flat as increased production from Qatar was offset by field decline. On the downstream side, ExxonMobil experienced a drop in petroleum product sales to 6,428 kb/d from 6,741 kb/d in 2008, mainly reflecting lower demand.

The year 2009 has been difficult for ExxonMobil. The company has had to endure a plummet in crude oil prices, special charges of US$140 million related to the Valdez punitive damage award, and a sharp reduction in oil demand. Total revenues and other income over 2009 came in at US$310,586 million, down from US$477,359 million the previous year, while earnings per share (assuming dilution) dropped from US$8.66 to US$3.98. ExxonMobil planned a capex programme of around US$29 billion at start-2009 and despite difficult conditions the company's total capex came in at US$27,092 million in 2009, up from US$26,143 million in 2008. The build-up in crude oil prices between 2003 and 2008, ending at US$147/b in July 2008, has provided the supermajor with a financial cushion to maintain its high levels of capex, although it has done little so far to boost production volumes.

Outlook and Implications

ExxonMobil believes that long-term energy demand will grow by 35% between 2005 and 2030 and that the world will continue to be dependent on fossil fuels for the foreseeable future. Its aggressive capex plan is aimed at locating new reserves of crude oil and gas, often in high-risk plays, to meet this growing demand. ExxonMobil's rather unique financial position means that it is one of the few companies—along with some other major IOCs and Asian NOCs—able to carry out high-risk exploration campaigns on terms required by host governments in the current environment. The decline in refining margins and petroleum product demand has created additional incentives to invest in upstream operations. ExxonMobil has been looking to new deepwater acreage in the Sulu Sea, the Black Sea, and Libya. To date this strategy has resulted in high expenditure with little to show in terms of increased production or earnings. Exploration expenses charged to income that capture spending on unsuccessful wells increased by 39% in 2009. However, many exploration initiatives are still at the preliminary stages. The company is now looking at exploring offshore Brazil, Columbia, and eastern Canada and could even be eyeing the Arctic, following revelations that it was in discussions with Transocean Ltd. to sign a lease for a new rig capable of drilling in the region. These ventures are a gamble, even for a company with profits as large as ExxonMobil's, and their success will be important in determining future financial performance. However, ExxonMobil is also likely to keep up its farming in to high-potential acreage discovered by smaller companies and is highly interested in new oilfields discovered offshore Ghana and in Uganda. In addition ExxonMobil's purchase of XTO suggests that it is looking at the unconventional gas sector, where establishing a foothold will be important, particularly if technological advancement makes shale gas and other unconventional play types a competitive supply alternative in key consumption centres to gas liquefaction projects, in which ExxonMobil has invested heavily in Qatar, Papua New Guinea, and Australia.