Exxon and Shell Earnings, Hurt by Natural Gas, Are Helped by Refining
November 1, 2012
HOUSTON — Exxon Mobil and Royal Dutch Shell reported lackluster earnings on Thursday because of declining oil and natural gas production and weak domestic gas prices.
The third-quarter results for the two energy giants would have been worse had it not been for strong performances from their refinery operations. Company executives also noted that the international oil business had been hurt by economic distress in Europe and Japan and weakening growth in China.
Energy analysts were not surprised by the results since natural gas prices in the United States were roughly 30 percent lower than the year before. Oil prices were little changed, but both companies have become increasingly dependent on gas production in recent years.
Exxon Mobil reported net income of $9.57 billion in the quarter, down from $10.33 billion a year ago, with revenue of $115.71 billion, nearly 8 percent lower than in the third quarter of 2011. For the first nine months, however, earnings were up 10 percent.
Shell reported net earnings, adjusted for charges, of $6.6 billion, down from $7 billion in the third quarter of 2011. The company was forced to write down $354 million in assets during the quarter, mainly gas fields in the United States. Shell had a $7.14 billion profit in the quarter, up 2.3 percent from last year, after including extraordinary items and inventory changes.
“The performance of each company’s exploration and production business lagged expectations,” said Philip H. Weiss, a senior energy analyst at Argus Research Group. “Natural gas prices, particularly in North America, have been weak, driving the underperformance.”
Exxon Mobil, the largest American oil company, became the country’s biggest gas producer three years ago when it bought XTO Energy for $41 billion. The purchase gave Exxon Mobil experienced personnel in exploring and drilling in shale formations, but gas drilling in the United States has become increasingly unprofitable the last couple of years and few analysts expect gas prices to increase much over the next year.
Both companies in recent months have shifted more American production to oil from gas, with Shell acquiring West Texas oil fields from Chesapeake Energy for nearly $2 billion and Exxon Mobil spending $1.6 billion to acquire acreage in the Bakken shale oil field in North Dakota from Denbury Resources.
Shell began drilling in Alaskan Arctic waters over the summer, though equipment problems and thick ice delayed operations. The company had hoped to complete up to five wells but was only able to begin drilling two wells. Nevertheless, the start of drilling culminated six years of legal and regulatory struggles and appeared to assure more exploration next summer.
Exxon Mobil was hurt by production problems in Kazakhstan and the North Sea, while Shell’s oil production was hurt by theft, flooding and political instability in Nigeria.
Exxon Mobil reported a decline of 1.8 percent in oil production for the quarter and a 1.3 percent gas production decline, excluding the impact of divestitures, production-sharing contracts and quotas set by the Organization of the Petroleum Exporting Countries. Shell’s production of oil and gas was down about 1 percent.
David Rosenthal, Exxon Mobil’s vice president for investor relations, said he was not overly concerned by the decline in production. “We are only slightly below” previous expectations, he said, adding: “Most of that production is pretty much back up,” referring to Kazakhstan and the North Sea.
Exxon’s stock price closed at $91.69 on Thursday, a 43-cent increase, while Shell’s price jumped $1.51, to $69.99.
A bright spot for both companies was improving results in their refining businesses. Exxon Mobil’s downstream earnings, mainly from refining, were nearly $3.2 billion, up $1.6 billion from the third quarter of 2011. But Simon Henry, Shell’s chief financial officer, noted in a conference call that improved refining margins were more the result of supply shortages than stronger demand.
“We’re seeing evidence of a weak economy all around us in our downstream, marketing and our chemicals business,” Mr. Henry said, “so the downstream rally over all could be short-lived.”
Quarterly financial results have been mixed in the oil patch. Total, the French oil giant, reported on Wednesday that its third-quarter profit jumped 20 percent, largely because of improved refinery margins. Conoco Phillips reported that its net income fell 30 percent in the quarter, with revenue declining 10 percent.
But many energy analysts say they believe that global oil demand could revive in the coming months, particularly if the Chinese economy strengthens. A Barclays research note this week predicted that in 2013 Chinese oil demand would increase 340,000 barrels a day, based on an expected rebound in manufacturing and truck sales.
Source: The New York Times
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