Exxon Falls After Reporting Lowest Production in Five Years

Jul 31, 2014 4:19 pm ET

(Updates share price in second paragraph.)

July 31 (Bloomberg) -- Exxon Mobil Corp. fell after reporting oil and natural gas production declined to the lowest level in almost five years, raising the stakes as it seeks to pursue crude deposits in Russia.

The world’s largest energy company dropped 4.2 percent to $98.94 at the close in New York, the biggest slide in almost three years, after reporting second-quarter earnings that beat analysts’ estimates.

The company’s oil and gas output decreased 5.7 percent to the equivalent of 3.84 million barrels a day, the lowest since the third quarter of 2009, according to data compiled by Bloomberg. Exxon had been expected to post quarterly output equivalent to 3.96 million barrels, based on six analysts’ estimates. Crude from Exxon wells in Europe and Asia dropped, while gas production faltered in every region in which the company does business except Africa and the South Pacific.

Exxon is going after crude in Russia’s Arctic regions in an effort to extract some of the largest oil reserves and reverse a trend of declining production for the company. Its allocating $39.8 billion to capital projects this year, including hundreds of millions for an exploratory well in Russia’s Kara Sea, as part of a 29-year agreement signed with Moscow-based OAO Rosneft in 2011.

Sanctions threaten to halt that progress after the U.S. and European Union said July 29 they would restrict the export of technologies for energy production to Russia. The oil-producing nation holds an estimated $8 trillion worth of crude underground.

Profit Rise

Exxon is awaiting further details on U.S. and EU sanctions to determine any effects, Vice President David Rosenthal said on a conference call today. He declined to comment on how the recently completed Berkut platform, a joint venture with Rosneft of Russia’s Far East coast, was financed.

“Because these new oil technology sanctions imposed by Europe and the U.S. governments do impose some restrictions on Arctic drilling technology, it may have an effect on these Arctic drilling plans,” Pavel Molchanov, a Houston-based analyst for Raymond James & Associates Inc., said in a phone interview before the results were released. Molchanov rates Exxon the equivalent of a buy and doesn’t own the shares.

The lower production figures came as the company reported better-than-expected second-quarter earnings. Excluding one-time items, per-share profit was 19 cents more than the $1.86 average of 21 estimates compiled by Bloomberg. Net income climbed 28 percent to $8.78 billion, or $2.05 a share, from $6.86 billion, or $1.55, a year earlier, the Irving, Texas-based company said in a statement today.

Higher Prices

Earnings were driven by higher fuel prices. Brent crude futures, a global benchmark, rose 6 percent from a year earlier to average $109.76 a barrel in the second quarter. Natural gas futures prices in New York rose 14 percent to average $4.579 per million British thermal units.

Exxon’s performance has trailed competitors and the Standard & Poor’s 500 Index for the past year, gaining 7.3 percent, less than half of the S&P’s move. The company, which has a market value of $432 billion, has 14 buy ratings from analysts, 13 holds and five sells.

--With assistance from Zain Shauk in Houston.