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Exxon First-Quarter Profit Drops as Output, Gas Decline

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April 26 (Bloomberg) -- Exxon Mobil Corp., the world’s largest energy company by market value, said net income fell 11 percent as its biggest first-quarter production decline since 2008 wiped out most of the benefit of record oil prices.

First-quarter profit was $9.45 billion, or $2 a share, compared with $10.65 billion, or $2.14 a year earlier, the Irving, Texas-based company said in a statement today. Exxon was expected to report per-share net income of $2.08, based on the average of 16 analysts’ estimates compiled by Bloomberg.

Chairman and Chief Executive Officer Rex Tillerson has been looking for new projects to reverse production declines that reached 5.5 percent during the first three months of this year, the third straight quarter of shortfalls, according to data compiled by Bloomberg. Lower output was driven by natural field declines and the impact of higher prices on production-sharing agreements.

The company’s oil output fell by 7.7 percent during the quarter while production of U.S. natural gas that is fetching the lowest prices in a decade rose 0.7 percent.

“The production growth slackening is a concern,” Allen Good, an analyst at Morningstar Inc. in Chicago, said today in a telephone interview. “But they should have some projects coming online in the next couple of years that will add crude production so hopefully they will reverse some of these declines.”

New Production

Production from the Kearl oil-sands project in Canada and Angolan and Nigerian developments, which are expected to begin operations this year, are key to meeting the company’s 2012 volume outlook, David Rosenthal, Exxon’s vice president of investor relations, said on a conference call today.

Exxon expects full-year volume performance to be consistent with its March outlook, he said. The company has estimated that output would fall 3 percent this year.

Sales rose 8.8 percent to $124 billion. Exxon fell 0.9 percent to $86.07 at the close in New York. The shares have risen 1.6 percent this year.

Exxon became the world’s biggest dividend payer yesterday when it boosted its quarterly distribution by 21 percent to 57 cents a share.

The increase brings the company’s annual payout to shareholders to $2.28 a share, or $10.7 billion, more than AT&T Inc., Apple Inc. and General Electric Co., according to Howard Silverblatt, senior index analyst at Standard & Poor’s.

Dividend Increase

“The 21 percent increase is obviously very large, but we think there’s more to come,” Jason Gammel, an analyst at Macquarie Capital Ltd., said today during an interview with Maryam Nemazee on Bloomberg Television’s “The Pulse.” “Another 20 percent next year is certainly achievable.”

Exxon plans to purchase about $5 billion of its shares in the second quarter, unchanged from the first quarter, Rosenthal said during the call.

U.S. gas fell 40 percent during the quarter to an average of $2.503 per million British thermal units as new wells in shale formations glutted domestic markets and demand slumped during a mild winter. The fuel reached a 10-year low of $1.902 on April 19 before rising to $2.068 yesterday.

The company is moving rigs to projects focused on petroleum liquids, such as the Bakken Shale and Permian Basin, Rosenthal said.

Exxon is “continuing 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,” he said.

Brent crude futures, the benchmark for two-thirds of the world’s oil, averaged $118.45 a barrel, a record for the first quarter and a 12 percent increase from a year earlier. Exxon’s production was 51 percent oil and 49 percent gas last year, according to data compiled by Bloomberg.

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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