Exxon's 4Q Profit Slips 16% on Lower Oil, Gas Output

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By Ernest Scheyder

Exxon Mobil, the world's largest publicly traded oil company by market value, posted lower-than-expected quarterly profit Thursday as it failed to offset declining production but spent heavily to find fresh reserves.

The problem of declining production at legacy oil and natural gas wells has become endemic for multinational energy groups, which have tried to offset the trend by launching massive and risky exploration projects.

Exxon's (XOM) oil and natural gas production dropped 1.8 percent in the fourth quarter from year-ago levels, with natural gas production falling around the world and oil output slipping in half the regions where the company operates.

The results reflected a "mediocre quarter" for Exxon, especially in international production, said Edward Jones analyst Brian Youngberg.

"They've lost momentum already, reverting back to declining production and stagnant earnings," Youngberg said.

Exxon rival Royal Dutch Shell (RDS-A) (RDS-B) said Thursday the fourth quarter was its least profitable in five years as its own production slipped.

To assuage Wall Street, Chief Executive Officer Rex Tillerson promised in a statement that the company will ramp up exploration projects over the next two years to find newer reserves.

Exxon spent $42.5 billion in 2013 on exploration and other capital projects, %VIRTUAL-article-sponsoredlinks%a staggering sum that led Tillerson to admit last year: "I never would have dreamed we'd be spending at this level."

Exxon's liquefied natural gas operation in Papua New Guinea should make its first deliveries by September, while expansions at the Kearl oil sands development in Canada and the Upper Zakum oil project in Abu Dhabi are underway, executives said on a conference call with investors.

The company also is expanding in U.S. shale formations, adding rigs in the Permian formation in Texas and running all rigs available in the Bakken formation in North Dakota and the Woodford Ardmore shale in Oklahoma.

These and other projects should help Exxon reach its goal of boosting annual oil and natural gas production 2 percent to 3 percent by 2017.

Investors said they supported the new exploration if it helps increase total production.

"If it's done in the context of normal exploration, or a change in the makeup of demand, that's probably a positive," said Oliver Pursche of Gary Goldberg Financial Services, who manages Exxon shares for clients. "If it's as a result of existing wells are drying up, that's a negative."

For the fourth quarter, Exxon posted net income of $8.35 billion, or $1.91 a share, compared with $9.95 billion, or $2.20 a share, in the year-ago period.

Analysts expected earnings of $1.92 a share, according to Thomson Reuters I/B/E/S.

Earnings fell in all of the company's units, including refining, where weaker margins eroded profit.

Refiners make more money when the price difference between various types of crude oil is wide. When the gap narrows in the price difference between West Texas Intermediate crude oil and Light Louisiana Sweet crude oil, as it has in recent months, costs tend to rise.

The company's chemical unit profit dropped slightly due in part to higher supply costs, especially for high-end specialty materials.

Separately, Exxon said it supports U.S. exports of crude oil, a potentially divisive issue in the country.

"We oppose any barriers or restrictions to free trade," David Rosenthal, Exxon vice president of investor relations, told investors on the call.

Shares of Exxon fell 0.8 percent to $94.32 in afternoon trading.

CEOs' Handsome Paydays
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Exxon's 4Q Profit Slips 16% on Lower Oil, Gas Output
It can't be said that there's no connection between performance and compensation; Blankfein's tenure at Goldman shows some correlation. In 2007, he took home a staggering $68.5 million -- the record for investment banker compensation. After the bailouts, Blankfein's pay dropped to $600,000 in 2008, and $1 million in 2009 (still a relative pittance). It rebounded in 2010, however, reaching $25.6 million, but fell back to around $12 million after Goldman's profits dropped in 2011. But the relationship between CEO quality and salary is not always clear: This year, Blankfein lead the way among big bank execs with $26 million, despite job and compensation cuts at Goldman.
In 2012, Dimon's pay was cut in half from the previous year, reflecting the $6.2 billion trading loss out of JPMorgan's London office (and a resultant Senate report saying the bank had mislead shareholders and regulators). He still got a healthy $11.5 million.
The founder and leader of Capitol One (COF) earned $17.5 million last year. Bloomberg considers him the most overpaid bank CEO.
No. 1 U.S. home lender Wells Fargo (WFC) had a banner year, banking a record $18.9 billion profit. Stumpf, who denies the existence of "a subsidy or unfair advantage from being perceived as too big to fail," took home $19.3 million. He currently chairs the Financial Services Roundtable, Wall Street's lobbying arm.
Outside the world of banks, the U.S. Justice Department on Friday announced its opposition to American Airlines' proposed $20 million severance for CEO Tom Horton. The carrier, owned by parent AMR Corp. (AAMRQ), is merging with US Airways Group (LCC); Horton became CEO when American filed for Chapter 11 bankruptcy protection in November 2011. But even though American wants to give him all that cash, plus lifetime flight benefits, Horton won't actually be joining the ranks of the unemployed: The plan is to make him chairman of the combined company after the merger.

As the Associated Press explained, "Bankruptcy law limits severance payments to executives and aims to make sure companies can repay as much of their debt as possible." The government's objection observed that, according to previous filings by American, Horton would have received at most $6.4 million if he had left at the end of 2012. Why so much more money now? American's board should have to explain how the $20 million figure was determined, the trustee's office says. And guess who the chairman is: one Thomas W. Horton. Bankruptcy court will consider the question on June 4.
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