Sharp fall in profit for Exxon after loss of Abu Dhabi oil concession

The Exxon Mobil refinery in Baytown, Texas. Jessica Rinaldi / Reuters
Powered by automated translation

ExxonMobil reported a steep drop in fourth quarter profit that still handily beat expectations as the rout in oil prices ushered in an era of frugality for an industry that reaped US$3.2 trillion in sales last year.

Exxon’s net income fell to $6.57 billion, or $1.56 a share, from $8.35bn, or $1.91, a year earlier, the Irving, Texas-based company said in a statement. Per-share earnings were 22 cents above the $1.34 average of 19 analysts’ estimates compiled by Bloomberg.

Exxon, the world’s biggest oil producer by market value, follows Chevron, ConocoPhillips and other oil titans in posting deep profit declines after a shale-driven supply glut hammered crude prices. Layoffs, drilling delays and more than $40bn in spending cuts have already been announced as oil companies scramble to ensure they have enough cash on hand to continue shelling out dividends to investors.

“The last thing any of these oil majors want to do is cut the dividend,” said Ed Cowart, who manages $640 million at Eagle Asset Management in St. Petersburg, Florida. “They’d cut the chairman’s pay before they’d touch the dividend – it’s that important to them.”

Oil producers, drillers, equipment suppliers and steelmakers have slashed tens of thousands of jobs after crude lost almost 60 per cent of its value in seven months, an oil market slump not seen since the financial crisis of 2008-09. The Chevron chairman and chief executive John Watson last week warned that belt-tightening would intensify if the price decline deepens.

For Exxon, oil’s crash during the second half of 2014 added to the sting of international sanctions imposed against Russia that halted the American company’s exploration ambitions in one of the world’s biggest untapped petroleum caches.

Exxon was forced to halt cooperation with Moscow-based Rosneft on a billion-barrel Arctic Ocean discovery in October after the US and European Union forbade collaboration with Russia’s offshore oil and shale industries. The impact was particularly harsh for Exxon, as Russia represents its largest exploration prospect outside the US.

Exxon held 11.4 million acres of Russian drilling rights at the close of 2013, second only to the 15.1 million acres the company held in the US, according to US. Securities and Exchange Commission filings.

Brent crude, the benchmark for most of the world’s oil, fell 30 per cent to an average of $77.07 a barrel during the final three months of 2014. Every $10 drop in crude prices costs the descendant of John D Rockefeller’s Standard Oil Trust $2.84bn in annual operating cash flow, according to Barclays.

ExxonMobil said its production of oil and gas was down nearly 5 per cent on the year, with most of the decline due to the loss of its Abu Dhabi onshore concession, which was a 9.5 per cent stake it held in the old Adco concession that expired at the start of last year.

ExxonMobil lost 135,000 barrels per day of production last year with the expiry of the concession, which it was only partly able to make up from production from new projects.

In its earnings statement, ExxonMobil said that overall oil-equivalent production was 4 million bpd, down 4.9 per cent from 2013. Excluding the impact of Adco, production would have been down 1.7 per cent.

Earnings last year were $32.5bn, down $60m from 2013. ExxonMobil said earnings from US upstream were up $1bn at $5.2bn. Earnings outside the US were down $299m at $22.4bn.

Fourth quarter earnings were hit by a combination of lower year-on-year production and sharply lower oil prices: earnings of $6.6bn in the fourth quarter were down $1.8bn, or 21 per cent, compared the year- earlier quarter.

* With additional reporting by Anthony McAuley of The National