Exxon Profit Profit Rises as Asset Sales Offset Prices

Exxon Mobil Corp. (XOM), the world’s biggest oil company by market value, earned less than expected as oil demand stalled in the world’s largest economies and U.S. natural-gas prices dropped.

Second-quarter net income was $15.9 billion, or $3.41 a share, compared with $10.7 billion, or $2.18, a year earlier, Irving, Texas-based Exxon said in a statement today. Excluding one-time gains that accounted for almost half of the quarter’s profit, per-share income was $1.80, or 15 cents lower than the average of 15 analysts’ estimates compiled by Bloomberg.

Exxon fell short of estimates for the second straight quarter amid a widening production decline that Chairman and Chief Executive Officer Rex Tillerson is attempting to reverse with $37 billion in capital spending this year. The company pumped the equivalent of 4.15 million barrels of crude a day during the April-to-June period, the lowest in two years.

“It was another sub-par quarter for Exxon,” said Brian Youngberg, an analyst at Edward Jones in St. Louis, who has a hold rating on Exxon’s shares. “They are struggling to grow production and commodity prices are working against them.”

Sales rose 1.5 percent to $127.4 billion. Exxon rose 1.5 percent to $86.52 at the close in New York amid a broader market rally.

Items Guidance

Exxon initially announced during a conference call with news organizations that its per-share profit of $3.41 didn’t include any special or one-time gains. An e-mailed statement released within minutes of the call showed the $7.5 billion in gains that accounted for 47 percent of the per-share figure.

“Asset divestment and acquisitions have become a normal part of our ongoing operations,” David Rosenthal, an Exxon spokesman, said during a later conference call with analysts today. “This is an ongoing piece of the business for us.” The U.S. Securities & Exchange Commission’s criteria for what qualifies as a special item has evolved in recent years, he said.

Brent crude futures, the benchmark for two-thirds of the world’s oil, averaged $108.76 a barrel during the quarter, a 7 percent decline from a year earlier. Oil demand in the U.S. and China, which together consume almost one-third of the world’s crude, stagnated at 28.2 million barrels a day, little changed from a year earlier, according the International Energy Agency.

Gas futures traded in New York fell 46 percent compared to a year earlier to average $2.354 per million British thermal units, the lowest quarterly average since 1999, according to data compiled by Bloomberg. Tillerson warned last month that Exxon and other gas producers have been “losing our shirts” amid a glut of North American supply.

Losing Bet

Gas, the most-widely used U.S. furnace fuel and the nation’s second-largest source of electricity, has been a losing bet for the biggest energy explorers. Innovations in drilling and cracking subterranean rock formations allowed explorers to flood the U.S. and Canada with supply, pushing prices to the lowest in a decade earlier this year.

Exxon spent $35 billion on the 2010 acquisition of XTO Energy that enabled it to surpass Chesapeake Energy Corp. (CHK) as the largest U.S. gas producer. Since that deal closed, gas has fallen 33 percent to about $3.08 per million Btus.

Paul Cheng, an analyst at Barclays Capital Inc. in New York, told clients in a July 9 note that other major oil companies are more compelling investment opportunities because of concern “that the XTO operation will remain a drag on the company’s performance.”

Gas Glut

Exxon boosted U.S. gas production by 1.4 percent to 3.9 billion cubic feet a day even as a glut of North American supply depressed prices for the fuel, according to a filing made after its earnings release today. U.S. wells accounted for one-third of the company’s global gas output.

Profit from U.S. oil and gas wells plunged 53 percent to $678 million, according to the filing. Outside the U.S., oil and gas production income rose 8.3 percent to $7.68 billion.

Refining profit quadrupled to $6.65 billion after the company sold part of its Japanese business to TonenGeneral Sekiyu KK. (5012) Chemical profit jumped 9.7 percent to $1.45 billion. The Japanese sale contributed $5.3 billion to second-quarter results. On a per-share basis, the entire $7.5 billion in one- time gains accounted for $1.61 of net income.

“Those one-time gains were the swing factor,” Chris Kettenmann, chief energy strategist at Phoenix Group Partners LP in New York, said today in a telephone interview. “Liquids production was down and they were impacted like everybody else by lower global liquids prices.”

Royal Dutch Shell Plc (RDSA) earlier today said second-quarter profit fell 13 percent, excluding one-time items and inventory changes, to $5.7 billion, missing the $6.3 billion average of 10 analysts’ estimates compiled by Bloomberg. Chevron Corp. (CVX), Exxon’s largest U.S.-based rival, is scheduled to report results tomorrow.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

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

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