ExxonMobil 1Q Profit Falls 11%; Misses Views

HOUSTON - Exxon Mobil Corp. said Thursday its first-quarter earnings fell 11% on lower oil-and-gas production and a drop in chemical profits that more than offset the benefits of high crude prices and improved refining results.

Exxon Mobil reported a profit of $9.45 billion, or $2 a share, down from $10.65 billion, or $2.14 a share, a year earlier and below analyst expectations of $2.09. The miss was driven mainly by significantly lower-than-expected chemical results and lower profits from the company's international exploration and production arm, said Fadel Gheit, an analyst with Oppenheimer.

Revenue increased 8.8% to $124.05 billion.

The world's largest publicly traded oil company by market value, which has bet heavily on natural-gas production in recent years, was expected to see profit fall because prices for the commodity had hit decade-low levels. The earnings miss recently sent Exxon's shares 1.3% down to $85.74.

Speaking to analysts in a conference call, Exxon Vice President of Investor Relations David Rosenthal said the company is reducing the number of rigs drilling for natural gas in the U.S. and switching some of them to oil-rich areas such as the North Dakota Bakken Shale, West Texas's Permian Basin and Oklahoma's Woodford Ardmore.

"We have continued to shift [rigs] to the liquids-rich plays, ... focusing on the Bakken, the Permian," Rosenthal said. He said the company has "continued to acquire liquids-rich acreage at attractive prices and shift our rig fleet over to those areas while minimizing the incremental exposure to dry gas wells."

The Irving, Texas, company is operating 61 rigs in the U.S., down from up to 72 last year. Exxon plans to do exploratory drilling in Ohio's Utica Shale, the company said.

The change in drilling focus follows similar moves by other energy producers that have seen cash flows and earnings hit by depressed natural-gas prices, which have been trading at their lowest point in a decade at around $2 per million British thermal units.

The average price at which Exxon sold its natural-gas production in the first quarter was $2.74 per thousand cubic feet, down 20% from the same period a year earlier. The company's realized price for crude oil was $105.68 a barrel, 3% higher than a year earlier.

Exxon also continues to study the economics of exporting LNG from the U.S., taking advantage of its large U.S. natural-gas output base and global experience selling the product, Rosenthal said. "You can rest assured we've got folks looking at that and studying that as well," he told an analyst who asked him about LNG exports from the U.S.

Separately, Exxon said its operations in Argentina has been unaffected by the recent decision of the South American country's government to nationalize YPF S.A., the nation's largest oil company.

Exxon continues to explore for unconventional oil-and-gas resources and it's "encouraged" by the results of two wells completed in the first quarter, Rosenthal said. "We're in the process here in the second quarter of fracking those wells and will be testing them in the second quarter, so those plans continue and the objectives are being met," he said. "Having said that, of course we are monitoring events that are occurring down there."

Exxon said the Kearl oil-sand project in Canada is 90% complete and on schedule to start up later this year with initial gross production of about 110,000 barrels a day. Offshore Angola, Exxon's satellite project remains on schedule to start up by midyear with peak capacity of 100,000 barrels of oil a day, the company said.

Exxon's exploration and production earnings fell 10% to $7.8 billion on higher operating expenses and a 5% drop in production to 4.55 million barrels of oil equivalent a day. Excluding the impact of production-sharing agreements--which give Exxon less output when oil prices go up--OPEC quota effects and asset dispositions, quarterly production was down 1%, the company said.

The company's oil production fell 7.7% mainly due to the effect of production-sharing contracts. Exxon's natural-gas output declined 3.3% driven by field decline and asset sales, the company said.

Exxon's production decline shows major U.S. oil companies continue to struggle to increase their output as the reserves in their fields deplete quickly and access to new sources remains a challenge.

Refining and marketing earnings were up 44% to $1.59 billion mainly due to asset sale gains and improved volume as margins weakened.

Chemical earnings of $701 million were $815 million lower than the first quarter a year earlier on weaker margins, higher planned maintenance and the absence of favorable tax items.

Exxon Mobil said it expects to spend $5 billion on share buybacks in the second quarter, the amount it spent in the first quarter. On Wednesday, the company increased its quarterly dividend by 21% to 57 cents a share.