Exxon Profit Falls Unexpectedly as Oil Output Drops

Exxon Mobil Corp., the world’s biggest oil company, reported its first profit decline in more than three years after oil prices fell and production dropped.

“We’re starting to see a crack in the production side,” said Barry James, who manages $2 billion, including Exxon Mobil shares, as chief equity strategist at James Investment Research in Alpha, Ohio.
The profit decline was the first for Exxon Mobil since the first quarter of 2004, when the comparison suffered because the year-earlier period included $2.2 billion in one-time gains. Before today, the company had fallen short of analyst earnings estimates only once in six quarters.

The company’s annual sales exceed the gross domestic products of most of the world’s nations, including Indonesia, Poland, Venezuela and Norway.

Oil prices fell 8.1 percent from a year earlier to a second-quarter average of $65.02 a barrel in New York futures trading. Exxon Mobil said its revenue dropped 0.7 percent to $98.4 billion.

Production from Exxon Mobil’s African wells, source of more than one-fourth of the company’s crude, declined 9.2 percent. In the U.S., oil output fell almost 10 percent. New wells in Russia, Canada and the Middle East produced too little to make up for restrictions by the Organization of Petroleum Exporting Countries and declines elsewhere.

Profit from oil and gas sales, which account for more than two-thirds of the company’s net income, dropped 17 percent to $5.95 billion. Spending on exploration and development of new wells fell 1.7 percent to $3.87 billion.

“I’m surprised production declined,” said Douglas Ober, who manages $2.5 billion at Baltimore-based Adams Express Co., where Exxon Mobil is his largest holding. “I would’ve thought they’d be higher.”

The world’s biggest energy companies have expanded the search for oil to the deepest oceans and remotest corners of the globe as output wanes from U.S. and European fields first tapped decades ago. Oil deposits once regarded as too far away, costly or difficult to refine into fuels are now being drilled as easier-to-reach reserves disappear.

Bloomberg