Exxon Boosts Production Amid Slumping Refining Margins

Exxon Mobil Corp. (XOM), the biggest oil company by market value, lifted production for the first time in more than two years as net income slumped 18 percent on dwindling refining returns.

Exxon’s oil and natural gas output rose 1.5 percent to the equivalent of 4.02 million barrels a day, the first increase since the second quarter of 2011, according to data compiled by Bloomberg. Crude prices also climbed, raising costs and contributing to an 81 percent plunge in profit at the company’s refineries.

“They were hurt on the cost side,” said Ernie Cecilia, who helps manage $7 billion, including Exxon shares, as chief investment officer at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania.

Net income fell to $7.87 billion, or $1.79 a share, from $9.57 billion, or $2.09, a year earlier, Irving, Texas-based Exxon said in a statement today. The per-share result was 2 cents higher than the average of 21 analysts’ estimates compiled by Bloomberg.

Exxon was the biggest gainer in the Dow Jones Industrial Average of 30 blue-chip stocks today. The shares rose 0.9 percent to $89.62 at the close in New York. Sales declined by 2.4 percent to $112.4 billion.

Refining Crude

Profit from processing crude into fuels fell to $592 million during the quarter from $3.19 billion a year earlier, according to the statement. Returns from oil and gas sales rose 12 percent to $6.7 billion and chemical profit climbed 30 percent to $1.03 billion.

U.S. profit margins from refining oil into products such as gasoline and diesel declined 43 percent to an average of $17.54 a barrel during the July-to-September period as the cost of U.S. crude feed stocks rose. It was the first time the average quarterly spread fell below $20 since late 2010, according to data compiled by Bloomberg.

The company has been processing output from its Kearl oil-sands development in western Canada at plants in Joliet, Illinois; Baton Rouge, Louisiana; and Sarnia, Ontario, David Rosenthal, vice president of investor relations, said during a conference call with analysts today. Some of the Kearl production also has been sold to other refiners, he said.

Exxon Chairman and Chief Executive Officer Rex Tillerson is seeking to revive production growth and curb cost increases amid stagnant energy demand in the world’s largest economy and shrinking access to the world’s remaining untapped crude reservoirs. The company’s growth prospects include gas-export developments in Australia and Papua New Guinea, oil-sands production in western Canada and Arctic forays in Russia.

Less Downtime

Output in the quarter rose on the contributions from new projects and less downtime at existing projects.

Exxon stock has languished among the poorest performers of the world’s largest oil producers, advancing 2.6 percent this year to yesterday, less than one-third the gain of its largest rival Chevron Corp. (CVX)

Brent crude futures, the benchmark for two-thirds of the world’s oil, were little changed during the quarter from a year earlier, trading at an average price of $109.65 a barrel. The premier U.S. crude, West Texas Intermediate, rose 15 percent to average $105.81-a-barrel average in the quarter.

U.S. natural gas climbed by 23 percent to $3.555 per million British thermal units from $2.893 a year earlier, according to data compiled by Bloomberg. Gas accounted for about 49 percent of the company’s worldwide reserves at the end of 2012.

Boost Production

Tillerson, 61, has been telling investors and analysts since March that output from Exxon’s wells will decline by 1 percent this year before new projects boost production as much as 3 percent annually through 2017.

Exxon is the second-to-last major non-state oil producer to report third-quarter results. Earlier today, Royal Dutch Shell Plc (RDSA) said net income declined 35 percent and Total SA (FP) reported a 10 percent decline.

On Oct. 29, BP Plc (BP/) said profit adjusted for one-time items and inventory changes declined 26 percent to $3.7 billion. That exceeded the average estimate from analysts who forecast $3.4 billion in profit. Chevron, based in San Ramon, California, is scheduled to release 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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.