For the past several quarters, ExxonMobil (NYSE: XOM), the biggest of Big Oil, has been held up to derision for the amount of earnings it has achieved. Can you say "Windfall Profits Tax?"
But it shouldn't happen this quarter. The company has faced the same set of negatives that have hit the other integrated oil companies that have reported thus far. We all recall that a year ago, crude prices were trading in the vicinity of $125 per barrel, and that natural gas was in the low teens. Since that time, crude has been cut about in half, and gas is trading at a third of its year-ago levels.
The result for ExxonMobil was an unexpected 66% year-over-year drop in its earnings -- about halfway between the cuts suffered earlier by BP (NYSE: BP) and ConocoPhillips (NYSE: COP). Exxon earned $4.09 billion excluding special items, down from $11.97 billion in the second quarter of 2008. It'll be followed on the reporting chain by Chevron (NYSE: CVX) and Total (NYSE: TOT), which you can bet will suffer a similar fate.
On the upstream production side, Exxon actually performed worse than either BP or Chevron, both of which increased their year-over-year production. Exxon's earnings from the sector slid to $3.81 billion, down 62% from last year. Obviously, most of the difference can be tied to lower prices for crude and natural gas. However, on an oil-equivalent basis, a decline of about 3% in quarterly production also didn't help. In its downstream refining part of the business, ExxonMobil earned $512 million, or about a third of the $1.56 billion of a year ago, primarily due to skinnier margins.
On the plus side
Beyond the financial results, however, the company can point to a number of operating successes thus far in 2009. Exxon has made major progress on Qatargas 2, a big liquefied natural gas project it's sharing with Qatar Petroleum.
And then there's the possibility of teaming up with TransCanada (NYSE: TRP) to build a gas pipeline from northern Alaska to Chicago. Furthermore, the company is paying increasing attention worldwide to unconventional gas plays, including Canada's Horn River Basin, where it now has 305,000 acres.
Nevertheless, given the Thursday surprise, I'm in no hurry to recommend buying Exxon shares right now. Indeed, since oil prices have seemed to hit a wall around the $70 level, and natural gas continues to languish, I'm of a mind to give the majors and the independents some distance until prices show they can push upward again.
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