Exxon Earnings Down

But "contented" oil company focusing on capital investment

Abbie Westra, Director, Editorial, CSP

IRVING, Texas -- Exxon Mobil Corp.'s sale of its On the Run convenience store franchise system to Laval, Quebec-based Alimentation Couche-Tard Inc., the owner of the Circle K brand, "highlights the oil behemoth's hankering to get out of the retail fuel business," reported BNET. This is a big deal for Couche-Tard because it establishes a relationship with a company that holds another 800 corporate stores and more than 1,300 franchise locations, said the report.

Couche-Tard and other fuel retailers may soon have a glut of locations to choose from, BNET added, since a number [image-nocss] of other Major Oil companies, including ConocoPhillips, BP and Shell, are divesting themselves of retail outlets.

Margins in the retail fuel business are already tight. ExxonMobil has said that it believes that consumption of gasoline has peaked and that U.S. demand will shrink 22% between now and 2030, the report said. The company "is not going to wait to get rid of a shrinking profits ship. And if they can sell their other locations before the rest of the oil major gang joins in, Exxon may just make a bit more money than the rest."

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Meanwhile, ExxonMobil reported a 58% decline in its first-quarter earnings from a year ago, thanks to depressed oil demand and prices. The company's earnings fell to $4.6 billion, while its earnings per share dropped by 54% to 92 cents.

David Rosenthal, ExxonMobil vice president of investor relations and secretary, expressed the company's contentedness for the results during an earnings call yesterday, emphasizing its long-term focus on capital investment. In the first quarter, the company increased its capital and exploration project spending to $5.8 billion, up 5% from last year.

"Exxon is showing it's an extremely disciplined company that will continue its journey no matter what," Fadel Gheit, an analyst at Oppenheimer & Co., told The Wall Street Journal.

Oil-equivalent production of 4.2 million barrels per day was up slightly from first-quarter 2008. Excluding the impact of entitlement volumes, OPEC quota effects and divestments, production was up by 2%.

When asked whether OPEC quotas and Qatar will change the company's continued outlook of 4 million barrels per day, Rosenthal said, "There are a lot of things that can sway that, but where we're sitting today, we still think that's a pretty good outlook."

Downstream earnings of $1.133 billion were down $33 million from the previous year. Higher margins increased earnings about $700 million.

Petroleum product sales of 6,434 thousands of barrels per day (kbd) were 387 kbd lower than last year's first quarter, mainly reflecting asset sales and lower demand.

U.S. downstream earnings were $352 million, down $46 million from the first-quarter 2008. Non-U.S. downstream earnings of $781 million were $13 million higher than last year.

Meanwhile, upstream earnings were $3.503 billion, down $5.282 billion from first-quarter 2008. Lower crude oil realizations reduced earnings approximately $4.4 billion while lower natural gas prices decreased earnings about $500 million. Higher operating expenses reduced earnings about $300 million.

Earnings from U.S. upstream operations were $360 million, $1.271 billion lower than first-quarter 2008. Non-U.S. upstream earnings were $3.143 billion, down $4.011 billion from last year.

On the corporate and financing segment, expenses increased by $347 million from first-quarter 2008, primarily due to lower interest income reflecting a reduced cash balance and lower interest rates, as well as the impact of positive tax affects. Compared to fourth-quarter 2008, those expenses increased by $53 million. "As we look forward, we currently expect corporate and financing charges in 2009 to be in the region of $500 to $700 million per quarter," said Rosenthal. At the end of the first quarter, the company had a cash balance of $25 billion and a debt of $9 billion.

The company distributed $9 billion to shareholders; of that total, $7 billion was distributed to purchase shares in excess of dilution, reducing the number of shares outstanding by almost 2%. And on Wednesday, the board announced an increase in quarterly dividends to 42 cents per sharemarking the 27th consecutive year of increased annual dividend payment.

"These results reflect the strength of ExxonMobil's business plan," said Rosenthal. "We remain confident that our long-term perspective, financial strength and disciplined investment approach will continue to deliver superior differentiated results and position us well for the future."

Abbie Westra, CSP/Winsight By Abbie Westra, Director, Editorial, CSP
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