WSJ -- Exxon, Chevron Post Higher Earnings Despite Drops in Production ..........................
Oct. 31, 2014
Exxon, Chevron Post Higher Earnings Despite Drops in Production
Improvements at Refining Businesses Help Offset Lower Production, Exploration Results
By Chelsey Dulaney
Exxon Mobil Corp. and Chevron Corp. reported surprising profit growth on Friday, despite gloomy market conditions, boosted by their refining divisions that have lost favor with some smaller peers.
Unlike Marathon Oil Corp. and ConocoPhillips , which spun off their refining arms into separate companies, both Exxon and Chevron have opted for an integrated business model, tapping crude and refining it into fuels like gasoline and diesel.
This broad-based model has helped to fortify Exxon and Chevron against market swings, as the lower crude oil prices that hurt their exploration and production divisions have boosted earnings at their refineries.
Exxon’s refinery earnings jumped 73% in the third quarter, helping drive a 2.5% increase in total profit, while Chevron’s refinery earnings more than tripled, propelling a 13% jump in overall profit.
Both companies said higher refining margins buoyed their results, while lower production was a drag.
Exxon’s production declined 4.7% on an oil-equivalent basis, while Chevron’s dropped 0.8%. That led to a 4.4% profit decline at Exxon’s upstream segment and an 8.7% decrease at Chevron.
Chevron said its average sales price for crude oil and natural gas liquids fell by $10 a barrel to $87 in the quarter, while prices fell internationally to $93 a barrel from $104. Exxon didn't break out its prices in its news release.
Oil prices have taken a hit globally in recent months, falling by about 25% since peaking in June, amid concerns about growing supply and tepid demand.
Exxon’s slumping production reflects in part a willingness by its leadership to shed some of its less-profitable barrels, such as a concession in Abu Dhabi that expired in the past year. Exxon has lagged behind Chevron in squeezing the most profit from the barrels of oil and gas, and Chief Executive Rex Tillerson has made improving profitability one of the company’s highest priorities.
A majority of Chevron’s production, meanwhile, consists of oil and liquid fuels, making it more exposed to crude prices than peers with output more evenly balanced between oil and gas.
Both companies have cited projects abroad as opportunities to boost production going forward.
Exxon has begun pumping oil and gas from a few major projects, including an oil sands venture in Canada that started up last year and a gas-export project in Papua New Guinea that shipped its first cargoes in the second quarter.
But its plans to drill in Russia’s Arctic seas -- its biggest opportunity to discover untapped deposits of oil and gas -- are facing uncertainty amid U.S. sanctions on Russia. Exxon said recently that it would stop drilling in Russia’s Arctic waters because of the sanctions.
For his part, Chevron Chief Executive John Watson pointed to projects in Bangladesh, Australia and the Gulf of Mexico as potential boosts for future production.
In all, Exxon reported a profit of $8.07 billion, or $1.89 a share. Revenue slipped 4.3% to $107.5 billion. Analysts polled by Thomson Reuters expected a per-share profit of $1.71 and revenue of $105.51 billion.
At Chevron, earnings rose to $5.59 billion, or $2.95 a share, helped by asset sales and foreign currency changes. Revenue fell 6.5% to $54.7 billion. Wall Street called for $2.55 a share in earnings and $58.18 billion in revenue.
Exxon bought back $3 billion in stock in the quarter, while Chevron repurchased $1.25 billion.
Write to Chelsey Dulaney at chelsey.dulaney@wsj.com
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