ExxonMobil 1Q profit drops 11 percent
It was an especially tough quarter for ExxonMobil.
The company produced less oil and natural gas. Profits dropped at its chemical plants and U.S. refineries. And its overall net income fell 11 percent, the first decline in quarterly earnings since late 2009.
The results, announced April 26, signaled a tough year ahead for Exxon and the rest of the petroleum industry. Even after spending billions of dollars hunting for oil at the bottom of the ocean, in the frigid waters of the Arctic and deep underground in North American shale rock, Big Oil is failing to keep up with growing world oil and gas demand. On top of that, the cost of oil, which rose 14 percent in the U.S. during the quarter, kept Exxon from earning bigger profits on the chemicals and gasoline it sold.
There was some positive news for investors. The company sold oil for higher prices around the world, and international natural gas prices rose by 16 percent. Profit rose for its international refining operations. Exxon also plans to boost its quarterly dividend by 21 percent, the largest increase since it 1975, making it the biggest corporate dividend payer.
Even so, Exxon shares fell 78 cents to $86.07
Exxon isn’t alone in its struggles. Its production of oil and natural gas was flat last year. Chevron Corp., BP and Royal Dutch Shell also produced less.
In the first three months of this year, Exxon’s output fell 5.5 percent, twice the rate expected for the year.
A handful of trends are keeping oil companies from pumping more oil and gas. Existing fields produce less as they get older. New wells are tougher, and more expensive, to find.
And some of the world’s best resources are controlled by foreign governments that want to keep their oil revenue at home. They typically offer contracts that limit the amount of oil and gas that partners, such as Exxon, can sell as prices rise.
Exxon must find new sources of crude to get its production back up. It will plow $185 billion into capital projects over the next five years. That’s up 29 percent from the previous five-year period, and much of the budget is devoted to finding more oil. Exxon says production will eventually grow about 2 percent to 3 percent annually over the next several years.
The company expects production soon from oil fields in Canada and wells in Angola and Nigeria. It’s also boosting production in Iraq, and it’s expanding its drilling operation in parts of North Dakota, the Midwest and Appalachia.
Exxon also recently signed a deal with Russian oil giant Rosneft to search for oil and gas in the Arctic and the Black Sea. Drilling could begin as early as 2014, The Russian Arctic is in such a remote and frigid part of the world, however, that moving quickly will be difficult, the company said. It “will require all of the technological and operational capabilities to explore,” said David Rosenthal, Exxon’s chief of investor relations.
Exxon, America’s largest energy company earned $9.45 billion, or $2 per share, from January to March. Revenue rose 8.8 percent to $124.1 billion.
The results were short of Wall Street expectations.
Profit declined 10 percent for Exxon’s exploration and production business and it dropped 54 percent for its chemical business. Profit fell 13 percent at Exxon’s U.S. refineries, though profits more than doubled at overseas refineries.
Rosenthal wouldn’t comment about reports that the company has been banned from bidding for more contracts in Iraq next month. Iraq’s state run oil company said it will turn away future offers from Exxon after the company signed deals with the self-ruled Kurds last year against the wishes of the Iraqi central government.
ConocoPhillips 1Q profit drops 3 percent
ConocoPhillips said April 23 that its first-quarter profit dropped 3 percent because it produced less oil and natural gas from a shrinking pool of assets.
America’s third-largest oil company has been selling pieces of its global operation. It planned to split into two smaller companies May 1. One company will keep the ConocoPhillips name and focus on exploration and production. The other, Phillips 66, will specialize in refineries and pipelines.
CEO Jim Mulva will retire following the split.
Since 2010, ConocoPhillips has moved in the opposite direction of its Big Oil peers, shedding oil fields and investments in companies like Russian oil giant Lukoil. Overall, it has sold more than $20 billion in assets and investments since 2010, and it expects to divest another $8 to $10 billion over the next 12 months.
With fewer producing assets, ConocoPhillips’ oil and natural gas production dropped by 3.8 percent to 1.64 million barrels of oil equivalent per day in the first quarter. The company’s oil platforms also were temporarily suspended off the coast of China because of an oil spill.
ConocoPhillips expects overall production in 2012 to continue to lag last year’s pace.
From January to March, ConocoPhillips reported earnings of $2.94 billion, or $2.27 per share. The exploration and production business contributed $2.55 billion of that amount.
A year earlier, the company earned $3.03 billion, or $2.09 per share. Revenue was flat at $58.4 billion.
Excluding special items, ConocoPhillips said adjusted earnings were $2.02 per share. Analysts, who typically exclude such items, were expecting earnings of $2.08 per share on revenue of $60 billion, according to FactSet.
Morningstar Inc. analyst Allen Good said a number of hurdles will remain following the split. Both companies will struggle to grow as swiftly as their peers, and they’ll continue to be saddled with unprofitable assets.
More than a third of ConocoPhillips’ natural gas production comes from fields in the United States, where prices have plunged to 10-year lows. The company has reduced natural gas production this year in hopes that prices will eventually rebound. But Good said overall U.S. production continues to rise, which will keep the value of ConocoPhillips’ natural gas assets low.
The refining business continues to look for suitors for a Trainer, Pa., refinery that has struggled to generate profits as oil prices rose this year.
During the quarter, ConocoPhillips’ refineries also sold less gasoline, diesel and other petroleum products. Total refining sales dropped by 11.2 percent. Refining profit fell by 6.2 percent overall. Its midstream business, which includes pipelines, increased profits 27.4 percent, and its chemicals business boosted profits by 13 percent.
Shares fell 55 cents to close at $72.33 April 23.
Production rise helps Shell beat forecasts in 1Q
Royal Dutch Shell PLC delivered forecast-busting first quarter earnings on April 26 as it benefited from higher oil prices, and said it is looking for ways to exploit the current low cost of natural gas in North America.
The oil company’s earnings on the industry standard CCS or “current cost of supplies” measure, which strips out changes in the price of oil, and excluding one-time charges, were $7.30 billion, up 16 percent from $6.29 billion.
Earnings were higher than anticipated — the consensus in the markets was that the company would post something around the $6.5 billion mark. Shares in the company were 3.3 percent higher in early afternoon trading in London at 22.61 pounds.
“Underlying cash flow has improved markedly,” said analyst Tony Shepard of Charles Stanley. “Upstream earnings were ahead of expectations ... reflecting higher prices and slightly improved volumes.”
Selling prices on average were $111.5 per barrel in the quarter, against $97.2 per barrel a year ago, while volumes rose 1.4 percent to 3.55 million barrels a day as new projects came on line. The company has been investing heavily in new production and is targeting 4 million barrels per day production by 2018.
Chief Financial Officer Simon Henry said the company is also considering several ways of taking advantage of low natural gas prices in North America. U.S. natural gas production has soared in recent years as drillers use techniques such as hydraulic fracturing, or “fracking” to gain access to wells that were hard to reach in the past.
“Clearly gas is selling at about $12 per barrel of oil equivalent, and oil is selling at $112,” Simon said on a conference call. “Anybody who can arbitrage that gap has potential value opportunity.”
The company is already investing in a relatively small facility on the west coast of Canada for shipping Liquefied Natural Gas, or LNG, to Asia. It is also looking at converting gas to chemicals in “the Pennsylvania area,” and more LNG transport capacity in Canada.
But most importantly, Shell is considering a plant on the model of its new “Pearl” facility in Ras Laffan, Qatar, which converts natural gas to transportation fuels. It is by far the largest of its kind in the world and cost at least $18 billion to build by the time it began producing in 2011.
Henry said the company is considering sites in Texas or Louisiana to build a similar facility, improving on its Pearl design, but that it is at least a year away from making a “final investment decision.”
If the idea goes ahead, the facility wouldn’t come on line until the “latter half” of this decade, he said.
A major factor will be whether Shell believes that a significant discrepancy between natural gas and oil prices will persist for at least 20 years.
“It’s potentially a very profitable way of turning low-cost natural gas into very high value diesel, kerosine, jet fuel and lubricants,” Simon said.
A more detailed look at Shell’s earning statement shows that first quarter earnings, including one-off items, fell by less than 1 percent to $8.72 billion. In the fourth quarter of 2011, Shell made $8.78 billion, including proceeds from selling some gas assets in Texas. Sales were $120 billion, versus $110 billion.
At the company’s upstream, or production, operations, earnings were $6.71 billion versus $5.76 billion.
Downstream operations, which include refining operations and chemicals sales, earnings rose 13 percent to $1.32 billion, entirely due to one-time charges last year and one-time gains this year. Stripping out those effects, downstream profits would have declined 32 percent. Shell blamed a “weaker global refining environment.”
Chevron sticks with oil, and it pays off
Chevron never bought into North America’s natural gas boom the way Big Oil peers like Exxon did. That decision appears to be paying off.
The San Ramon, Calif., energy giant reported April 27 that profits increased 4.2 percent from January to March as oil sold for higher prices. Meanwhile a plunge in U.S. natural gas prices contributed to an 11 percent profit decline at ExxonMobil. ConocoPhillips, another major U.S. natural gas producer, saw profits fall 3 percent.
Chevron’s reliance on oil “turned out to be a really good decision,” Argus Research analyst Phil Weiss said. “And it could serve them well. They have a lot of cash on hand.”
New technologies set off a rush to explore the continent’s vast shale gas deposits that eventually drew in the major oil companies. ExxonMobil Corp. made a big splash in 2010 with a $35 billion acquisition of XTO Energy that made it America’s largest natural gas producer overnight. Exxon now produces more natural gas than oil.
Royal Dutch Shell spent about $11 billion to acquire large tracts of natural gas-producing assets in North America.
Chevron’s only major move in North American natural gas was a $4.3 billion deal last year to acquire Atlas Energy of the U.S. Oil still makes up more than two-thirds of Chevron’s total production.
Chevron, the second-largest U.S. energy company behind Exxon, reported net income of $6.47 billion, or $3.27 per share, for the first quarter. That compares with $6.21 billion, or $3.09 per share, for the same part of 2011. Revenue increased less than 1 percent to $60.7 billion.
The results met Wall Street expectations. From January to March, Chevron sold crude and other liquid hydrocarbons for an average of $102 per barrel in the U.S. and $110 per barrel internationally, up 15 and 16 percent, respectively. That boosted revenue even as overall production dropped 4.7 percent.
The major oil companies, including Chevron, are struggling with a slowdown in production. New fields are tougher to find and expensive to develop. And many of the best reserves are owned by foreign governments that reduce the amount of oil that companies can sell as prices rise.
Chevron also suffered a reduction to production in Brazil. The Brazilian government ordered Chevron to shut down operations at its offshore Frade field after an oil leak at one of its wells. Prosecutors are now seeking $11 billion in environmental damages and have filed criminal charges against executives from Chevron and rig owner Transocean Ltd.
Pat Yarrington, Chevron’s chief financial officer, said in a conference call that production in the area will stay offline while the company conducts a “technical study” of the field’s underlying geology.
“We will resume production in the Frade field only when we are completely satisfied we can restart production safely, and when we have obtained the full support of our partners in the Brazilian regulators,” Yarrington said.
Profits at Chevron’s refining business rose 29 percent, but mostly because it sold its Pembroke Refinery in the United Kingdom and other assets for $200 million.
Chevron shares fell 2 cents to close at $106.20 April 27.
TransCanada reports a drop in 1Q earnings
Pipeline and utility company TransCanada Corp. reported a decline in first-quarter profit April 27, citing a mild winter and low natural gas prices as contributing factors in a net earnings report that missed analyst expectations.
TransCanada, which is involved in building the southern leg of the Canada-Texas Keystone XL oil pipeline, said net income attributable to common shareholders in the three months ended March 31 was CA $352 million (US $357.7 million) or 50 Canadian cents per share.
That compared with CA $411 million (US $417.6 million) or 59 cents per share in the same 2011 period.
Revenue was CA $1.91 billion (US $1.94 billion), up from CA $1.86 billion (US $1.89 billion).
Analysts were on average expecting earnings of 54 cents per share and revenues of about CA$2.2 billion (US $2.24 billion).
“A very warm winter, historically low natural gas prices and planned maintenance outages at Bruce Power (nuclear plant in Ontario) impacted earnings in the first quarter of 2012,” said president and CEO Russ Girling said in a statement.
UBS Investment Research analyst Chad Friess said anything natural gas-related weighed heavily on TransCanada’s first-quarter results. Natural gas has recently hit 10-year lows below US $2 per 1,000 cubic as new supplies from prolific shale formations outpace demand.
TransCanada, North America’s largest natural gas shipper with a vast network of pipelines criss-crossing the continent, has proposed the US $7.6 billion
Keystone XL pipeline — an expansion to a system that currently delivers Canadian crude to the U.S. Midwest.
The pipeline, which would connect Alberta crude to refineries along the Texas coast, has become a major political flashpoint as U.S. President Barack Obama seeks re-election in November.
Stories compiled from AP reporters Chris Kahn and Toby Sterling