Exxon Mobil Falls as Net Misses Estimates on Slower Growth in Production

Exxon Mobil Corp. (XOM) reported lower- than-estimated second-quarter profit as production growth lagged analysts’ forecasts and refining earnings outside the U.S. declined.

Per-share profit was 16 cents less than than the $2.34 a share forecast, based on the average estimate of 18 analysts in a Bloomberg survey. Net income rose 41 percent to $10.68 billion, or $2.18 a share, from $7.56 billion, or $1.60, a year earlier, the Irving, Texas-based company said today.

Exxon said second-quarter revenue climbed 36 percent from a year earlier to about $125.5 billion.

Non-U.S. refining earnings fell 20 percent from a year earlier to about $622 million. Oil and natural-gas production in the quarter rose 10 percent to about 4.4 million barrels of oil equivalent a day, less than the 12 percent growth expected by Philip Weiss, an analyst at Argus Research in New York. Exxon’s gas output in Europe tumbled 18 percent and the company relied on last year’s purchase of XTO Energy to boost U.S. gas production.

“The earnings improvement is not as strong as some of its peers, relative to last year,” said Brian Youngberg, an analyst at Edward Jones in St. Louis who has a “hold” rating on Exxon shares and owns none. “Part of that is attributable to the XTO acquisition, which increases Exxon’s reliance on North American natural-gas prices, which have remained weak compared to oil.”

Photographer: Heidi Wideroe/Bloomberg

Esso oil refinery stands in Slagentangen, Norway. Close

Esso oil refinery stands in Slagentangen, Norway.

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Photographer: Heidi Wideroe/Bloomberg

Esso oil refinery stands in Slagentangen, Norway.

Liquids vs. Gas

Many oil and gas companies have focused in the past year on growing their liquids production to boost profits while gas prices remain low. Exxon’s global liquids production increased 1.1 percent in the quarter, while gas production rose 22 percent.

Exxon fell $1.85, or 2.2 percent, to $81.46 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has 13 buy recommendations from analysts, 12 holds and one sell.

The company’s production is consistent with its plan to boost output 3 percent to 4 percent in 2011 compared with 2010, David Rosenthal, vice president of investor relations, said today on a conference call with analysts and investors.

Exxon Mobil’s performance “reflects the ability of our business model and competitive advantages to deliver strong results,” Rosenthal said.

Average gas prices in the second quarter climbed to $4.378 per million British thermal units, less than 3 cents higher than the second quarter of 2010. Oil futures in New York averaged $102.34 a barrel in the second quarter, 31 percent higher than the $78.05 a barrel a year earlier as economic expansion stoked energy demand and a civil war in Libya disrupted oil exports.

Downstream Profits

Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, said he expected refining earnings of about $2 billion in the quarter, while the segment reported $1.36 billion of profit. Total refining, or downstream, earnings climbed $136 million from a year earlier.

“Downstream profitability, particularly for a highly global company like Exxon, is always just notoriously difficult to forecast,” said Molchanov, who has a “market perform” rating on Exxon shares and doesn’t own any.

Exxon said second-quarter chemical earnings declined by $47 million from a year earlier to $1.3 billion.

Gas Expansion

Chief Executive Officer Rex Tillerson has orchestrated $38 billion in acquisitions since June 2010 to amass gas fields and the expertise to exploit them. Exxon plans to purchase more gas reserves and is assessing targets in more than a dozen gas-rich shale-rock formations worldwide, Jack Williams, president of Exxon’s XTO Energy unit, said in a July 20 interview. Exxon paid $34.9 billion to acquire XTO last year.

XTO now manages a U.S. resource base equivalent to about 76 trillion cubic feet of gas, compared with 45 trillion at the time of its merger, Exxon said today in slides for a presentation on its results. The increase was driven by acquisitions, revisions and corporate transfers, according to the company.

Exxon has also expanded its oil holdings, most recently with the discovery last month of a Gulf of Mexico complex that may hold the equivalent of more than 700 million barrels of crude. The estimated size of the field, known as Hadrian, may increase as drilling continues 250 miles (400 kilometers) southwest of New Orleans, the company said in a June 8 statement. Exxon is drilling to deeper objectives, where it has found more oil, Rosenthal said today.

Finding Deeper Oil

Exxon’s Rosenthal said the company remains committed to its integrated business model that combines oil and gas production with refining and chemical manufacturing. Investors and analysts have been reconsidering the value of the model after two integrated oil companies this year, Marathon Oil Corp. (MRO) and ConocoPhillips (COP), decided to spin off their refining units into separate publicly traded companies.

“I think you’ll see over time that model will continue to work for us,” Rosenthal said. “If it’s broken for others or others don’t see the same kind of advantage that we do, it’s not surprising that you might see some different approaches.”

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.

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