Exxon Profit Surges, But Production Slips

Hess To Form MLP For North Dakota Oil, Gas Transport Assets
ExxonMobil's net income rose 28% in 2Q on a sale of Asian assets and higher oil prices, while oil and gas production slipped 6%.


NEW YORK (AP) — Exxon Mobil's net income rose 28 percent in the second quarter on a sale of Asian assets and higher oil prices, but oil and gas production slipped a disappointing 6 percent.

Exxon reported net income of $8.78 billion in for the second quarter Thursday, on revenue of $111.65 billion. Last year during the same period, the company earned $6.86 billion on sales of $106.67 billion.

On a per-share basis, Exxon earned $2.05, up from $1.55 last year. The average estimate of analysts surveyed by Zacks Investment Research was for profit of $1.91 per share, but that estimate does not include the benefit from the Asian asset sale.

Exxon, based in Irving, Texas, does not provide a breakdown of its adjusted results excluding one-time events such as asset sales. Exxon's sale of power and utility assets in Hong Kong helped increase its earnings by $1.2 billion.

Exxon also benefited from higher oil prices in the quarter, both in the U.S. and abroad. In the U.S., Exxon sold oil for an average of $98.55 per barrel, up from $93.18 per barrel in last year's second quarter. Outside of the U.S., oil sold for $103.72, up from $101.54 last year.

But the asset sale and higher oil prices masked a continuing decline in oil and gas production at Exxon. Production fell to 3.84 million barrels of oil and gas per day from 4.15 million barrels last year. The decline was driven by the expiration of rights to a field in Abu Dhabi, low natural gas demand in Europe, and natural field declines.

Exxon's production has been steadily shrinking, and it is a continuing concern for investors. "Production volumes were weaker than anticipated," said Brian Youngberg, an analyst at Edward Jones. "Declining production continues to be a problem for the company."

On a conference call with investors, Exxon's investor relations chief David Rosenthal said despite the declines the company remains on schedule to meet its output targets for the year thanks to higher-than-expected oil production in the U.S., rising oil production at a Canadian oil sands project and liquefied natural gas production out of a new project in Papua New Guinea.

Exxon did not say whether increased U.S. economic sanctions against Russia would affect its ability to proceed on schedule on its extensive joint operations with the Russian state-owned oil company Rosneft.

"We are waiting for further details on the sanctions in order to better understand how we need to comply," Rosenthal said.

Exxon Mobil Corp. shares were down $3.11 to $100.14 in afternoon trading.

Copyright 2015 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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Philippe | Aug. 2, 2014
Exxon and many other majors are operating in a changing O&G business. By enlarge majors have been shy or have divested their assets from what they considered middle to small projects. In the not too distant times, large projects required large capital up front, with the idea that profits would be realized over times. This is no longer the case in many places around the world. The new business model is far from been friendly to the majors or the midstream companies. Exxon Kezomba project is a good example. The contract with the Angola was that Exxon would get 100% of the production for 5 years. After these 5 years the production would revert to Angola. Exxon specifications call for equipment to meet a 5 years no shutdown schedule maintenance. All specifications were written in such way as to eliminate all possible maintenance shutdowns, for example: All electrical equipment had to be specifically grounded to the structure. Painting was specifically heavy coating. After 5 years all potential production losses would be at the expenses of the Angolans. Exxon passed the 5 years and for a negotiated period of time would be a production manager with Angola oversees. Exxon was to be paid by getting a percentage of the production based on the cost of the operation and management fee. Assuming that Kezomba has a 25 years life, Exxon ability to profit from Exxon knowhow is limited to, in this case, 20% of the project life. The balance of the life of the project, Exxon profits from its management skill, not its capital investment. This is the new O&G business model where the entire O&G fields are located on national boundaries or offshore commercial zones. These locations are subject to taxation but in the majority of cases to do business a Joint Venture has to be set up. These Joint Ventures, more times than not, the investor will be the minority member of the Joint Venture. To make things worse, in Nigeria, Exxon is the minority at 49%, Exxon put up the money up front, must use 40% of the operation, management and maintenance with local labor, must use 60% of the equipment from local manufacturers, and must price every cost in local currency the “Niras”. The price of the crude is set by the Nigerian and Exxon get paid in local currency. Many companies doing business in Africa, Middle East and Asia are limited by local law to export their profits which are in locale currencies. The local government wants these O&G companies to invest in their countries, for economic development. Today we are starting to see a pull back from the mega LNG projects. The up-front cost is such that less and less majors are willing to commit such large capital in locations where dubious governments are in power. LNG train construction requires large manpower, to make thing worst LNG trains are located in isolated areas where manpower has to be imported. In Australia, for example, the cost of construction is three times that of the US or Canada. It appears that to further reduce the labor cost, floating LNG trains may be the new solution. High tech ship yard, such as Singapore for example, will be the beneficiary. The competition from low tech shipyard from China will benefit from such new developments, passed articles from RigZone point to that direction. In conclusion, majors are finding more and more difficult to do business fetching descent profits. New developments are more and more difficult as well; political instability is the primary reason. Is it possible that the shale play change the business model of majors? I believe it will. The way the capital is invested in a shale play permit the investor to show profit faster for less committed capital. The business model, where by large capital up-front are making investors hostages of their capital is no longer necessary. The production is function of the number of well drilled. The drilling cost is scheduled over time. Time is the factor that can control political instability and excessive taxation. Majors will become again interested in mid-stream projects if only to stay relevant.

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