Exxon, Mobil: United They Stand But In 1Q99 They Fell
If the first quarter is any indication, Exxon and Mobil need
each other's help. Exxon's earnings dropped to $1.02 billion from
$1.82 billion in 1Q99 while Mobil experienced a drop from $715
million to $471 million. For the merging companies, the fall-off
represents more than a 33% reduction in net income for each company
from the same period last year.
Exxon's revenue fell to $27 billion from $30 billion in 1Q98.
The results from the first three months of 1999 also included a
$120 million charge for restructuring Japanese operations. Compared
to 1Q98, Exxon lost 40% of its net income. "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
(E&P) 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."
Lucio Noto, Mobil's CEO, said this transitory problem affected
Mobil as well. "Crude oil prices, after deteriorating during the
entire year of 1998 and most of the first quarter of 1999, have
recently improved somewhat. However, some pressure is building on
marketing and lubes margins due to the lag effect of rising crude
prices. Business fundamentals, as reflected in these price and
margin swings, continue to be unpredictable in the near term."
Mobil's earnings/share were down $0.30/share to $0.58/share in
the first quarter. Its E&P division earned $231 million, down
from $391 million in 1Q98. In refining and marketing, Mobil earned
$291 million, down $34 million from 1Q98. As if to add insult to
injury, the company also accrued a $7 million charge for costs
related to its merger with Exxon. In production, Mobil reported 902
MMcf/d, down 221 MMcf/d from 1Q98's result of 1.123 Bcf/d.
Mobil's self-help program was a bright spot in an otherwise poor
quarter, Noto said. "In the first quarter, all of our businesses
experienced a significant deterioration in industry fundamentals
versus the same quarter last year. However, improved performance
due to our self-help programs contributed about $125 million,
helping to offset the deterioration in industry fundamentals."
©Copyright 1999 Intelligence Press, Inc. All rights
reserved. The preceding news report may not be republished or
redistributed in whole or in part without prior written consent of
Intelligence Press, Inc.