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Exxon's First Quarter Profits Down 40%

Exxon's First Quarter Profits Down 40%

Exxon was hit and hit hard during the first quarter, posting a 40% drop in profits, the company announced yesterday. Earnings dropped to $1.02 billion from $1.82 billion in 1Q98. Revenue fell to $26.884 billion from $29.964 billion in 1Q98. The results from the first three months of 1999 also included a $120 million charge for restructuring Japanese operations.

"It was poor, but everybody expected that," said Katie Warne, an analyst with Edward Jones. "So, in that sense, the company didn't go very far beyond expectations. The one area that performed worse than I expected was the U.S. marketing and refining operations. I thought that division would have broken even but it lost money instead." The U.S. marketing and refining division lost $28 million in 1Q99 compared to a profit of $100 million in 1Q98.

Low commodity prices cut Exxon's total petroleum and gas earnings to $687 million, which is less than half of 1998's first quarter results of $1.5 billion. The exploration and production unit experienced losses of $258 million from its 1Q98 result of $683 million. Worldwide oil production was down 3.6% to 1,564 thousand b/d and worldwide gas production was up 4.5% to 7.5 Bcf/d. U.S. gas production was flat at 2.1 Bcf/d.

Ironically, Warne said the recent upturn in gas and oil prices negatively affected Exxon's earnings. "There is a transitory effect when there is a rapid change in commodities prices. Once oil and gas prices started turning around, the derivative products divisions couldn't adjust quickly enough. It put a tighter squeeze on the margins."

Expectations are just as low for the other major producers. "As sad as it seems, I think Exxon will be near the top of the list earnings-wise," Warne said. "This was just a terrible earnings quarter and Exxon is big enough to weather it while some others might get hurt more."

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