Exxon was hit and hit hard during the first quarter, posting a40% drop in profits, the company announced yesterday. Earningsdropped to $1.02 billion from $1.82 billion in 1Q98. Revenue fellto $26.884 billion from $29.964 billion in 1Q98. The results fromthe first three months of 1999 also included a $120 million chargefor restructuring Japanese operations.

“It was poor, but everybody expected that,” said Katie Warne, ananalyst with Edward Jones. “So, in that sense, the company didn’tgo very far beyond expectations. The one area that performed worsethan I expected was the U.S. marketing and refining operations. Ithought that division would have broken even but it lost moneyinstead.” The U.S. marketing and refining division lost $28 millionin 1Q99 compared to a profit of $100 million in 1Q98.

Low commodity prices cut Exxon’s total petroleum and gasearnings to $687 million, which is less than half of 1998’s firstquarter results of $1.5 billion. The exploration and productionunit experienced losses of $258 million from its 1Q98 result of$683 million. Worldwide oil production was down 3.6% to 1,564thousand 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 pricesnegatively affected Exxon’s earnings. “There is a transitory effectwhen there is a rapid change in commodities prices. Once oil andgas prices started turning around, the derivative productsdivisions couldn’t adjust quickly enough. It put a tighter squeezeon the margins.”

Expectations are just as low for the other major producers. “Assad as it seems, I think Exxon will be near the top of the listearnings-wise,” Warne said. “This was just a terrible earningsquarter and Exxon is big enough to weather it while some othersmight get hurt more.”

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