Oil investors got a two-for-one whammy on Thursday as oil futures prices continued to fall and ExxonMobil
While ExxonMobil's reported EPS figure of $1.22 slightly exceeded expectations, that included a $0.07 gain from the sale of the company's stake in China Petroleum and Chemical
Problems in the first quarter start at the top, with weaker hydrocarbon production. Natural gas production was down about 6% vs. the previous March, and liquids production (oil, mostly) dropped 3%. Putting it all on an oil-equivalent basis, total production in March fell about 5%.
The biggest production drops were in the United States, and only the Africa region showed improvement. Not surprisingly, then, ExxonMobil continues to focus a considerable majority of its exploration expenditures outside the U.S.
Despite that bad news, earnings from these upstream, or production, operations did manage to increase about 26%. Elsewhere, there was about 14% earnings growth in the downstream business, or consumption, as lower marketing margins hurt results. Chemical earnings more than doubled to $1.28 billion and made up about 17% of total earnings.
Putting its prodigious cash flow to work, ExxonMobil repurchased $3.6 billion worth of stock in the quarter, and management said it intended to accelerate that even further.
ExxonMobil's production figures for March highlight a problem across the industry. Many of the elephants of the energy business find themselves struggling to maintain, let alone increase, their production. While exploration is turning up some new deposits here and there around the world, they don't really move the needle for companies like ExxonMobil, and it has been years since a major new hydrocarbon field has been discovered.
It'll be interesting to see how big oil responds to this issue. Some companies might be tempted to simply hold down the fort, produce as much as they can, and hope that the worldwide demand/supply balance keeps prices high. Others might be tempted to spend their cash on acquiring smaller independents that have proven reserves of oil or natural gas, or both.
In any case, the excitement in the energy sector is far from over. Easing oil prices may choke off profit growth and casual investor interest, but the inner workings of energy demand and supply are getting more interesting day by day. With oil, gas, coal, and alternative energy sources like solar, wind, and fuel cells all seemingly heading in different directions, investors can look forward to years more of volatility and uncertainty in the energy world.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).