Exxon Beats Estimates as U.S. Oil Refineries Flourish

Exxon Profit Declines as Slowing Demand Growth Cuts Crude Prices
Light trails from moving vehicles are seen as they a pass an Esso gas station, operated by Exxon Mobil Corp. Photographer: Michael Nagle/Bloomberg

Exxon Mobil Corp., the world’s largest energy company by market value, posted net income that exceeded the highest estimate from analysts as its U.S. refineries diminished the impact of lower oil output and prices.

Third-quarter profit was $9.57 billion, or $2.09 a share, down 7.1 percent from $10.3 billion, or $2.13, a year earlier, Irving, Texas-based Exxon said in a statement today. The per-share result topped the high estimate of $2.07 and was 13 cents more than the $1.96 average of 19 analysts’ estimates compiled by Bloomberg.

Exxon’s profit from refining oil at U.S. plants soared 78 percent to $1.4 billion, even as the benchmark margin based on New York futures contracts dropped 5.2 percent. Oil and natural gas production from Exxon’s wells fell to the lowest in three years as output slipped everywhere the company operates except for Africa and Australia, slashing so-called upstream profit by 29 percent to $5.97 billion.

“Their upstream performance was light relative to expectations but that was offset somewhat by strength in their U.S. refining operations,” Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London, said in a telephone interview today.

Production Decline

Exxon probably will be forced to lower its full-year 2012 production target after output for the first nine months lagged the year-earlier volumes by 6.2 percent, Brian Youngberg, an analyst at Edwards Jones & Co. in St. Louis, said in an interview today. The company said in March that full-year production would be 3 percent lower than in 2011, or equivalent to 4.37 million barrels a day.

Exxon rose 0.5 percent to $91.60 at the close in New York. Exxon has risen 8.1 percent this year. The shares have 13 buy recommendations from analysts, 15 holds and zero sell ratings.

Sales fell 7.7 percent to $115.7 billion, a smaller decline than expected according to the average of three analyst estimates compiled by Bloomberg.

Exxon Chairman and Chief Executive Officer Rex Tillerson budgeted about $100 million a day this year to find oilfields, build gas-export terminals and upgrade refineries and chemical plants. The company agreed to almost $5 billion in acquisitions in the past six weeks to reverse the longest stretch of quarterly production declines in 13 years.

Exxon’s production of oil and gas liquids such as butane declined by 5.9 percent to 2.1 million barrels a day, led by falling output from European wells, according to the statement. More than 80 percent of Exxon’s oil and gas-liquids production comes from outside the U.S.

Brent Down

Brent oil futures, the benchmark for two-thirds of the world’s crude, fell 2.4 percent during the quarter to an average of $109.42 a barrel as global demand failed to keep pace with growing supply.

As the biggest U.S. gas producer, Exxon also was stung by a 29 percent plunge in gas prices to an average of $2.893 per million British thermal units during the quarter. Tillerson said in June that gas producers have been “losing our shirts” as drilling innovations allowed explorers to penetrate North American shale formations, leading to a supply glut.

Exxon’s gas production declined by 9.3 percent during the quarter to 11 billion cubic feet a day, according to the statement.

World Supplies

Even as Exxon output was falling, total worldwide crude output increased by 2.16 million barrels a day during the third quarter from a year earlier, overwhelming demand that grew by just 540,000 barrels, according to an Oct. 12 report by the International Energy Agency. Rising oil usage in major economies such as China, Japan, India and Russia was insufficient to offset falling demand in the U.S., the world’s largest crude market.

Exxon agreed on Sept. 20 to pay about $2 billion in cash and assets for Denbury Resources Inc.’s drilling rights to 196,000 net acres in the Bakken Shale formation beneath North Dakota and Montana. The transaction will boost Exxon’s holdings in the region by about 50 percent, the company said at the time.

Last month, Exxon added more shale acreage to its portfolio with a C$2.86 billion ($2.86 billion) agreement to purchase Celtic Exploration Ltd. The acquisition, Exxon’s largest since the $35 billion takeover of XTO Energy in June 2010, will provide access to the Montney and Duvernay formations in western Canada.


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