It's Not the Size of Exxon's Numbers That Matters
By
David Lee Smith
July 31, 2008
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Can you hear the cacophony starting? It's the sound of yapping about the size of ExxonMobil's (NYSE: XOM) record profits in its June-ended quarter -- and it'll get louder and more shrill.
It'll make little difference that the magnitude of Exxon's earnings -- $11.68 billion, or $2.22 per share, compared to $10.26 billion and $1.83 a share in the year-ago quarter -- is really a far less meaningful indicator of the company's health than its 8% slide from a year ago in production on an oil-equivalent basis. And even if you back out the effects of major production-cutting events during the past year, like the expropriation of the company's Venezuelan assets and outages in Nigeria, production still fell by 3%. That's bad stuff for a company that generates the majority of its revenue from the sale of oil and gas.
As was expected, and as was certainly the case at ConocoPhillips (NYSE: COP), BP (NYSE: BP), and Royal Dutch Shell (NYSE: RDS-A), the upstream sector -- exploration and production -- carried the day, based on big increases in both oil and gas prices. At Exxon, the sector's contribution jumped 68% to $10 billion. But the picture was far less bright downstream -- refining and marketing -- which saw its profits fall by 54% in the face of meager refinery margins.
For my money -- and I don't want to crush my Foolish friends under a pile of numbers -- there are a couple of other metrics you should know about. The first is that the Wall Street types had been looking for about $2.52 a share in earnings, so the company fell $0.30 short. But I continue to maintain that Exxon is far too complex and geographically diversified for earnings estimates to be given the import they typically are. Nevertheless, the miss hit the company's share price on Thursday.
The other number is the $8 billion the company spent buying back its own stock in the quarter. For perspective, Exxon could have bought SunPower (Nasdaq: SPWR) outright for less money than it spent on those buybacks.
Given my concerns over sliding production, though, I'm inclined to guide Fools more toward the oilfield services and independent E&Ps at this point in time -- namely, Schlumberger (NYSE: SLB) and Chesapeake Energy (NYSE: CHK).
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