July 31 (Bloomberg) -- Exxon Mobil Corp., the world's biggest oil company, posted a smaller increase in second-quarter profit than analysts estimated after production slid the most in at least a decade, sending its shares lower.
Oil and gas output tumbled 7.8 percent after Venezuela seized assets, Nigerian workers went on strike and governments from Angola to Russia kept more crude under contracts that give them a bigger share when prices rise. Crude climbed above $140 a barrel for the first time, allowing Exxon Mobil to achieve the highest profit ever for a U.S. company without one-time gains.
Net income rose to $11.7 billion, or $2.22 a share, from $10.3 billion, or $1.83, a year earlier, the Irving, Texas-based company said today in a statement. Excluding costs related to the Valdez oil-spill lawsuit, per-share profit was 26 cents below the average of 12 analyst estimates compiled by Bloomberg.
``They are not growing,'' said Philip Weiss, an analyst at Argus Research in New York who rates Exxon Mobil shares ``buy'' and owns none. ``Production is becoming more and more of a concern. For these guys, access to reserves is a very big issue.''
Chief Executive Officer Rex Tillerson, 56, is spending $52 million a day to search for new fields after reserves fell in 2007 by the most in at least a decade. Exxon Mobil plans to start 12 projects this year that will pump the equivalent of 411,000 barrels of crude a day, more than the daily output of Prudhoe Bay, the largest U.S. oil field.
Refining Profit Falls
Record energy prices inflated costs for Exxon Mobil plants that process crude and natural gas into fuels and chemicals. Profits from refining and chemicals fell 54 percent and 32 percent, respectively. U.S. gasoline futures rose at less than half the pace of crude during the quarter.
Exxon Mobil fell $2.68, or 3.2 percent, to $81.70 at 12:02 p.m. in New York Stock Exchange composite trading. The shortfall in earnings per share relative to analyst estimates was the company's biggest in at least three years. The stock has dropped 13 percent this year.
Royal Dutch Shell Plc, Europe's largest oil producer, today reported a 33 percent gain in second-quarter profit to $11.6 billion. London-based BP Plc said earlier this week that its net income climbed 28 percent to $9.47 billion. Shell's output fell 1.6 percent, and BP's was little changed from a year earlier.
Chevron Corp., the second-biggest U.S. oil company, and France's Total SA are scheduled to report earnings tomorrow. ConocoPhillips, the third-largest U.S. petroleum producer, said last week that its profit jumped to a record $5.44 billion.
Production Falls
Exxon Mobil pumped the equivalent of 3.8 million barrels of oil a day, its lowest average since the third quarter of 2005. Crude production declined in every region where the company has wells, and gas output fell everywhere except Russia, Europe and Africa. Production-sharing contracts with price triggers took away 160,000 barrels of daily oil equivalent, company spokesman Henry Hubble told investors on a conference call.
Profit from oil and gas sales climbed 68 percent to $10 billion.
``If oil prices are going up $20 and $30 a barrel a quarter like they have been, it hides a lot of flaws,'' said Brian Gibbons, an analyst at New York-based CreditSights Inc. ``The question on everyone's mind is, how do these guys expect to grow production given the restrictions on access to reserves?''
Tillerson, who succeeded Lee Raymond as CEO in January 2006, is facing increasing barriers to oil and gas exploration in Russia, Alaska and the South China Sea as governments limit access or raise the costs of tapping natural resources.
Price Impact
New York oil futures, which had never traded as high as $112 before the second quarter, surged to a record $143.67 in June. Each $1 gain in the price of oil boosts Exxon Mobil's net income by 11 cents a share, according to William Featherston, an analyst at UBS Securities LLC.
Natural gas rose even faster than oil in this year's first half, and the average second-quarter price jumped 50 percent to $11.47 per million British thermal units. Exxon Mobil's output is about 60 percent crude and 40 percent gas. Oil and gas sales account for more than 80 percent of profit.
Exxon said its second-quarter revenue jumped 40 percent to $138.1 billion. The company said it had $290 million in after- tax costs related to the June ruling by the U.S. Supreme Court that reduced a punitive damage award for the 1989 Valdez spill from $2.5 billion.
Exxon Mobil generates about $27 of cash flow from each barrel of production, 21 percent higher than the industry average, Gibbons said. The company was the most efficient oil and gas producer among its peers, yielding almost $3 of cash flow for every $1 spent, he said.
To contact the reporter on this story: Joe Carroll in Houston at jcarroll8@bloomberg.net.
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