XOM -- EXXON MOBIL earnings....
Exxon Posts 58% Profit Drop
Amid Poor Business Climate
By THADDEUS HERRICK
Staff Reporter of THE WALL STREET JOURNAL
Exxon Mobil Corp. said its first-quarter profit fell 58% as lower oil and natural-gas prices and lackluster demand combined to create the worst business climate since the 1980s.
The results reflect what is likely to be a troubling trend as more oil companies report their first-quarter earnings. In most cases, refining and marketing margins plunged due to a relatively warm winter, soft fuel demand and recession aggravated by the Sept. 11 terrorist attacks.
In addition, the Organization of Petroleum Exporting Countries failed to significantly slow non-OPEC growth in countries such as Russia, allowing world oil prices to fall. Natural-gas prices declined as well.
"The only good news in the quarter is that it's over," said Fadel Gheit, an analyst at Fahnestock & Co.
Oil prices began to rise toward the final weeks of the quarter, but it wasn't enough to make a difference. Still, the industry may be through the worst. With Iraq, a major producer, holding its oil off the market and political turmoil in oil-rich Venezuela, prices are rising once again on fears of supply constraints. What's more a U.S. economic recovery is widely seen as increasing oil, natural-gas and gasoline demand.
Last year, amid spiking oil prices, Exxon Mobil posted record earnings. But for the first quarter, the Irving, Texas-based company said net income fell to $2.09 billion, or 30 cents a share, from $5 billion, or 71 cents a share, a year ago. Revenue declined 24% to $43.53 billion from $57.3 billion.
For Exxon Mobil, the world's largest publicly held oil concern and widely seen as the industry leader, the results marked the fourth-straight quarter that year-over-year profits have dropped.
As of 4 p.m. Tuesday in New York Stock Exchange composite trading, Exxon Mobil shares fell 50 cents to $41.35, off the 52-week high of $45.84.
Still, Exxon Mobil isn't cutting back. The company said capital expenditures rose 18% in the first quarter, including a 28% rise in exploration and production as it scours the globe in an effort to replace its reserves. Capital spending this year is expected to be up by 10%, the company said.
Exxon Mobil said its crude-oil and condensate production fell to 2.54 million barrels per day from 2.6 million barrels per day a year ago. Natural-gas production also fell, dropping to 11.74 billion cubic feet per day compared with 12.12 billion cubic feet per day.
Lee Raymond, Exxon Mobil chief executive, called the refining and marketing margins "the primary driver" in the earnings decline, while Michael Mayer, an analyst at Prudential Securities said the margins were far worse than analysts had expected. Mr. Mayer said such conditions haven't been seen since the mid-1980s.
Exxon Mobil said its world-wide refining and marketing operations posted a $28 million loss compared with profits of $999 million a year ago. U.S. downstream earnings were $14 million, down from $409 million, as demand for heating oil and jet fuel dropped.
The company said crude-oil prices averaged less than $22 a barrel for the first quarter, down 25% from a year ago. Meanwhile natural-gas prices were down 60%, Exxon Mobil said. Exploration and production earnings were $2 billion, down 47% from the year-earlier period, while chemical earnings fell 34% to $132 million.
This year's first-quarter earnings reflected $60 million in costs related to the 1999 merger of Exxon Corp. and Mobil Corp., mostly from combining facilities and systems, the company said.
Marathon Takes a Tumble
Citing tight refining margins and lower natural-gas prices, Marathon Oil Corp. posted a steep first-quarter drop in net income, which slid 87% to $67 million, or 22 cents a share, from $509 million, or $1.62 a share, a year earlier. Revenue fell 26% to $6.45 billion. The Houston firm's recent results included a $13 million gain on a change in accounting principles and a $27 million gain from an adjustment of oil reserves. Prices of refined products such as gasoline failed to keep pace with the price of crude oil. Marathon reported a first-ever loss of $51 million in refining, marketing and transportation, in contrast with a profit of $276 million a year ago.
Write to Thaddeus Herrick at thaddeus.herrick@wsj.com
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