Irving, TX-based super major ExxonMobil Corp. delivered the goods on Thursday, reporting that its 2Q2010 net profits jumped 85% and production was up by 8% from the year-ago period. Excluding one-time charges, ExxonMobil earned $7.56 billion ($1.60/share), compared with $3.95 billion (85 cents) in 2Q2009.
Revenue rose 24% year/year to $92.48 billion. Cash flow from operations and asset sales was $9.6 billion, which included asset sales that totaled around $500 million.
The latest quarterly earnings were strong, but nothing compared with 2Q2008, which was well before the collapse of the financial markets. In the period two years ago ExxonMobil earned a record net profit of $11.68 billion, which was up from $10.26 billion in 2Q2007.
Financial analysts who listened to the quarterly wrap-up Thursday morning with investor relations chief David Rosenthal were intrigued by the oil major's natural gas operations, especially in North America. The company now is the largest gas producer in North America with its $41 billion takeover of XTO Energy Inc. (see Daily GPI, June 28).
ExxonMobil already had extensive onshore gas production, and it was among the top 10 producers. XTO's gas production contributed an estimated 135 MMcf/d to the latest quarter. And don't expect the oil major to relinquish its spot at the top of the gas leader board any time soon.
About 75 rigs now are drilling for gas onshore in the United States and Canada, and more rigs will be added through the year, Rosenthal told analysts.
"We are seeing a ramp-up in activity, and we've seen certainly seen a fairly significant ramp-up since the end of last year," he said. "We are finding that we have a very high quality, very deep inventory of drillable prospects in our unconventional acreage position, both what we had prior to the merge and then of course, with the recent merger with XTO. So it is our expectation that overall drilling activity would continue to increase."
ExxonMobil is finding success "across the board in all of the major plays," said Rosenthal. "We are only a month into this merger, but we are already well under way with activities to optimize the portfolio between the heritage ExxonMobil and XTO assets, making sure we have equipment in the right place to generate the highest returns and profitability.
"And while we don't have any specific target for year-end, or any objective that we are shooting for, we certainly, again, do see a number of opportunities to pursue. And I would expect to see the rig count continue to increase as we go across the year."
ExxonMobil in the latest quarter spud its first gas well in the Eagle Ford Shale, where it holds 50,000 net acres. In the Haynesville Shale gas play production was ramped up on acreage held by ExxonMobil prior to the XTO merger, and a second well is near completion. In the Marcellus, six wells now are producing and five additional wells are ready to tie in; three wells await completion.
"During the second half of 2010, we plan to further increase activity in the Haynesville, Fayetteville, Marcellus, Eagle Ford and Bakken shale plays," said Rosenthal.
Activity also continues to grow in Canada; ExxonMobil is the biggest leaseholder in the Horn River Shale. Completion operations are underway on the 2009 and 2010 winter season wells, and five more wells are scheduled to be drilled in the upcoming winter season.
The Piceance Basin gas operations in Colorado also are "progressing very well," he said. "We did see a nice ramp-up in volumes in the second quarter compared to the first quarter. In fact, we were at about 170,000 Mcf/d," which compares with about 30,000 Mcf/d in the year-ago period.
Later this year ExxonMobil also plans to commission and start up the Golden Pass LNG [liquefied natural gas] import terminal in Sabine Pass, TX.
Asked whether the North American onshore gas activity would be a "net user" of cash flow for the next few years, Rosenthal explained that current plans are to focus on increasing activity, rigs and "executing our plan as we go about the business and optimizing. If we look out, over time, we do expect all of that to be accretive to cash flow...as we ramp up activity, and ramp up the production there.
"But again, I have to say, the real focus of the organization today is optimizing the portfolio, getting the resources in the right place, getting activity increases where we can generate the most cash and the most earnings and really again looking at how we integrate technology into this business because that is one of the real levers we expect to get out of this."
ExxonMobil has been able to retain most of XTO's workforce, with the loss of only around 1%, said Rosenthal. That retention rate was actually better than XTO had pre-merger, he said.
"Flip that coin over," he said. What we are seeing is a tremendous level of excitement and enthusiasm, not only from the XTO organization, but from the ExxonMobil folks that have joined that organization."
In the Gulf of Mexico, where ExxonMobil also has extensive operations, there's been little impact since the deepwater moratorium was imposed by federal officials, Rosenthal said. The company had to suspend work on the Hadrian 3 deepwater well, "but that is a timing issue, and if you step back and look at our global exploration activity, that is progressing as planned...
"We don't have any one footprint more than the others across the world, so a slight delay in the Gulf of Mexico, but we're progressing full speed ahead in the rest of the world."
The Marine Well Containment System that ExxonMobil is creating with ConocoPhillips and Royal Dutch Shell plc to contain deepwater spills in the Gulf of Mexico has received positive response "across the board," he said. "And we are really meeting with legislators and government officials and policymakers and others in industry, on an ongoing basis. We are very engaged, and this, of course is just one of many efforts we and others in industry are taking really to improve both prevention and response from these type of events."
As "circumstances allow, we are anxious to get back to work on our portfolio in the Gulf and continue business as normal. It would be hard for me to speculate on what the final outcome might be on any legislation or any changes in liability estimates...[We're] making sure everybody is aware of the various consequences that might come out of a number of the things that are being considered" by legislators and regulators. "But it's really too early to speculate on the final outcome."
Upstream earnings in the latest quarter were $5.34 billion, up $1.52 billion from 2Q2009. U.S. upstream earnings grew to $865 million, which was $52 million higher than a year ago. Higher crude oil and natural gas realizations drove the global earnings gains and increased earnings by $1.6 billion.
On an oil-equivalent basis, gas and oil production increased 8% from the year-ago period. Natural gas production in the quarter reached 10.025 Bcf/d, up 1.984 Bcf/d from a year ago, "driven by project ramp-ups in Qatar and higher demand in Europe, partly offset by net field decline."
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