By Steven Mufson
Washington Post Staff Writer
Saturday, January 31, 2009
Exxon Mobil finished a roller-coaster year in the oil markets with an all-time record $45.2 billion in profits, despite fourth-quarter earnings that were a third lower than the same period a year before.
With oil prices slumping, Exxon Mobil suffered a sharp drop in profits from producing oil and gas but higher profit margins at refueling pumps and refineries overseas helped offset the impact of lower crude prices.
The world's most far-flung oil giant broke its own record for corporate profits in a year that saw oil prices climb to $147 a barrel in July then plunge to less than $40 a barrel. Despite falling prices, Exxon Mobil still beat analysts' expectations by registering $7.82 billion in profits, or $1.55 a share, for the final quarter of the year. Exxon Mobil and Chevron's revenue combined for 2008 exceeded the gross domestic product of all but 16 of the world's nations, according to Bloomberg.
"I don't think they'll be lining up for any TARP money or government handout any time soon," said Fadel Gheit, oil analyst with Oppenheimer & Sons.
Still, the murky outlook for the global economy has clouded the prospects for the oil industry. With economies reeling, oil consumption is falling. The Organization of the Petroleum Exporting Countries has slashed output to prop up crude oil prices, which at least for now remain weak.
Exxon Mobil's earnings report yesterday capped a week of mixed results from the world's biggest petroleum companies. Chevron yesterday announced that its fourth-quarter profit rose less than 1 percent from a year earlier to $4.9 billion. Despite lower oil prices, its refining profits jumped tenfold. Royal Dutch Shell, Europe's largest oil firm, on Thursday reported a loss for the fourth quarter because of inventory adjustments, but posted a $26.3 billion profit for the year.
Some big oil companies had more trouble navigating the zigzagging oil market and slumping economy. Conoco Phillips reported $1.9 billion in operating profits on Wednesday, but took a $33.7 billion charge against earnings because tumbling oil prices have slashed the value of exploration and production assets -- including Burlington Northern and a large stake in the Russian oil firm Lukoil -- that the company bought when prices were rising.
Conoco said it would cut its capital spending plans for 2009, suspend share buybacks and trim its workforce by 4 percent. Conoco also raised cash by selling $6 billion of bonds Thursday. "In light of the current business environment, we are reducing our cost structure and constraining capital to live within our means," Conoco chief executive James Mulva said.
Separately Hess, the No. 5 U.S. oil company, posted its first loss in six years, and Occidental Petroleum said its fourth-quarter profits hit a five-year low. The nation's biggest refiner, Valero, trimmed spending plans.
Exxon Mobil, however, showed little stress from oil market oscillations. The company planned to maintain its capital spending program for 2009, after spending $26.1 billion last year. It expects to bring eight new production projects on line this year, including oil from Malaysia, Azerbaijan and offshore West Africa, and liquefied natural gas from Qatar. And it finished 2008 with a cash horde of $31.6 billion.
"Our business model is designed to deal with these ups and downs," said Kenneth Cohen, vice president for public affairs.
The company said it would continue its controversial program to buy back shares of its own stock; critics say the company should instead use its money to increase dividends or increase exploration. Last year, Exxon Mobil spent a staggering $36 billion to repurchase its own shares, and in the final quarter drew down about $5 billion in cash reserve to maintain the repurchase pace. At the current rate of buying back shares, Exxon Mobil would be a completely private company in about 11 years.
Exxon says that the buyback program helps shareholders by increasing the earnings per share and buttressing value of the outstanding shares. The company said it spent $8 billion to reduce the number of shares outstanding in the fourth quarter alone, and that it would spend another $7 billion to do so in the first quarter of 2009.
Exxon Mobil's strong financial position has fueled speculation that it might bid to acquire another sizable company. "They don't need a line of credit," Gheit said. "Exxon can theoretically acquire any of its rivals with 35 percent premium, and they can boost earnings per share, cash flow per share and stock valuation because of their ability to squeeze out costs."
Meanwhile, Exxon Mobil and other major oil companies face a possible strike by United Steelworkers, whose contracts expire at midnight tonight. The union represents 30,000 employees at U.S. refineries that process two-thirds of the country's petroleum. It rejected an offer made by Royal Dutch Shell on Thursday night and said that "talks are progressing slowly." Exxon said yesterday that four of its refineries could be affected.
In a newsletter yesterday, United Steelworkers vice president Gary Beevers said, "Our focus now is on getting a fair and equitable pattern settlement, not on striking."