Exxon Profit Declines Less Than Expected as Expenses Tumble

May 01, 2014 4:57 pm ET

(Updates with closing share price in seventh paragraph.)

May 1 (Bloomberg) -- Exxon Mobil Corp. posted higher-than- expected profit as international sanctions against Russian interests clouded the U.S. oil explorer’s efforts to tap some of the world’s biggest crude reserves.

First-quarter net income was $9.1 billion, or $2.10 a share, compared with $9.5 billion, or $2.12, a year earlier, the Irving, Texas-based company said in a statement today. Per-share profit exceeded all 20 estimates from analysts in a Bloomberg survey and surpassed the average by 22 cents.

Russia’s oil and gas riches are key to Chairman and Chief Executive Officer Rex Tillerson’s plans for reviving output at the world’s biggest energy explorer by market value. Exxon’s global production has fallen in 10 of the past 11 quarters and net income is in the midst of the longest slide since the worldwide financial crisis of 2008-2009.

Tillerson, 62, slashed spending on drilling and acquisitions outside the U.S. by 41 percent to $5.2 billion and almost tripled asset sales to amass cash. The balance-sheet measures helped offset a larger-than-expected 5.6 percent drop in oil and natural gas production exacerbated by lower crude prices.

“Cash flow looks good and their projects are proceeding on schedule, so all in all it was a good quarter,” Brian Youngberg, an analyst at Edward Jones & Sons in St. Louis, said in a telephone interview today. Cost-containment and the absence of major deals akin to last year’s $3.1 billion Celtic Exploration Ltd. purchase in Canada were a boon, he said.

Revenue declined 1.5 percent to $106.8 billion.

Most Acreage

The company’s global production fell to the equivalent of 4.15 million barrels a day, the lowest first-quarter average since Exxon’s 1999 acquisition of Mobil. The company’s stock fell 1 percent to $101.41 at the close in New York trading. The shares have advanced 16 percent in the past year.

Tillerson and his management team have staked out their largest non-U.S. exploration claim in Russia, the world’s biggest source of crude last year, in a partnership with state- controlled OAO Rosneft. Exxon had exclusive exploration access to 11.4 million acres in Russia at the end of last year, according to a Feb. 26 filing with the U.S. Securities and Exchange Commission.

Exxon is allocating $39.8 billion to capital projects this year, including hundreds of millions for an exploratory well in Russia’s Kara Sea, above the Arctic circle, as part of a 29-year agreement signed with Moscow-based Rosneft in 2011.

Rising Risk

So far, international sanctions levied against a group of Russian individuals and corporations -- including Rosneft CEO Igor Sechin -- in retaliation for Russia’s encroachment on Ukraine hasn’t dissuaded Exxon or other foreign energy producers from investing in Russia’s petroleum sector. However, Russian President Vladimir Putin hinted at greater risks ahead for those companies in remarks April 29.

Putin warned that further economic sanctions may lead Russia to reconsider participation by U.S. and European Union companies in energy and other key industries.

Exxon’s engineers and geologists laying the groundwork for exploration at various Russian sites haven’t been disrupted from their work by the diplomatic tensions and subsequent sanctions, David Rosenthal, vice president of the company’s investor relations, said during a conference call with analysts today.

Drilling Success

Exxon’s Russian drilling rights include 11.3 million acres in the Kara and Black seas under the agreement with Rosneft, and another 85,000 offshore acres beneath the Sea of Okhotsk near Sakhalin Island.

Worldwide, Exxon found commercial quantities of oil or gas in 67 percent of the exploratory wells it drilled in 2013, unchanged from 2012, according to the filing. At the same time, Exxon’s costs to produce the equivalent of a barrel of crude jumped to $11.48 last year from $9.91 in 2012.

Brent crude futures, the benchmark for more than half the world’s oil, declined by 4.2 percent to an average of $107.92 a barrel during the quarter, according to data compiled by Bloomberg. U.S. gas prices climbed 35 percent to average $4.712 per million British thermal units during that period.

Global demand growth for fuels to run trucks, trains, airplanes and cars slowed to 0.9 percent during the first three months of this year from 1.3 percent a year earlier, according to the International Energy Agency.