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ExxonMobil Profits Up 69% on Gas, Chemical Earnings

ExxonMobil Corp.'s profits soared in the first three months of 2011 from a year ago, gaining on higher natural gas production and solid chemical returns, and harkening back to the industry's boom days before the late 2008 global economic collapse.

The world's largest public company's latest earnings soared to $10.65 billion, up 69%, or $4.35 billion from the year-ago quarter. However, they still fell about $4 billion short of the record $14.8 billion in profits reported in 3Q2008 (see Daily GPI, Oct. 31, 2008). Several analysts said if oil prices remain high, ExxonMobil could eclipse earlier profit records by the end of 2011.

What has changed since late 2008 is natural gas production, which was up in double-digits from the year-ago quarter, jumping because of the $41 billion acquisition of XTO Energy Inc. in late 2009 (see Daily GPI, Dec. 15, 2009). The Irving, TX-based super major's total production jumped 10% from the year-ago quarter to 4.82 million boe/d.

However, it was all about the gas, with output climbing by 24% year/year to 14.53 Bcf/d from 2.84 Bcf/d, driven by U.S. unconventional gas volumes gained mostly from the merger with XTO, as well as liquefied natural gas project ramp-ups in Qatar. Oil output, meanwhile, fell by 15,000 boe/d; excluding production sharing contracts and other factors, oil production would have been up by 2%.

Investor relations chief David Rosenthal, who hosted a conference call with financial analysts Thursday, was asked whether the company planned to alter its North American strategy, which, with the XTO merger, lifted ExxonMobil to the top spot of U.S. gas producers.

"We're very pleased with how things are going in the first quarter," said Rosenthal. "We're pretty much somewhere in the 65-70 rig quarter/quarter rate" in the XTO/ExxonMobil exploration areas. The rig rate likely will remain at that level through the year. "Obviously, we are optimizing the use of rigs, making sure that we're obviously hitting the liquids-rich areas to the best extent possible...prioritizing our gas rigs, [hydraulic fracturing] crews, support services, to maximize the value of the program."

The integrated ExxonMobil/XTO crews drilled 900 onshore wells in 2010, and "we've drilled 200 so far this year...So we are doing well...and the results to date are reasonable," Rosenthal said. "As we're looking across the year, it's consistent with our guidance in the March analyst meeting," when the company announced that for the short-term at least, oil output would be the main driver in North America (see Daily GPI, March 11).

XTO's portfolio gave ExxonMobil access to every major unconventional basin in the United States, giving the company a lot of leeway to go after oily and liquids-rich production.

Rosenthal also dismissed a question about whether ExxonMobil was interested in expanding its chemicals business, which is second in North America to Dow Chemical Co. ExxonMobil's chemicals business reported a record $1.5 billion in profits in 1Q2011, lifted by Asian demand and low natural gas prices.

Last week Dow launched a plan to increase ethylene and propylene production to take advantage of increasing shale gas supplies (see Daily GPI, April 25). Other companies also have announced plans to expand or build feedstock processing units because of the abundance of onshore gas supplies.

"We do have long history of investing through the price cycle, and that has served us well now and we expect it to in the future," Rosenthal said.

"In the United States we are enjoying a feedstock advantage...and we are taking advantage of that...But longer term in the United States the chemicals business starts at demand and demand growth to produce. We don't see in the United States demand as near as strong as in the Asia Pacific region and in the Middle East." ExxonMobil is building a chemicals facility in Singapore.

"Growth prospects are definitely outside the United States...While times are real good now and we are taking advantage of them, we are focused on our plan and the growth prospects outside the United States..."

ExxonMobil has begun drilling in the deepwater Gulf of Mexico, Rosenthal noted. Royal Dutch Shell plc also said Thursday drilling was under way (see related story).

"In the deepwater Gulf of Mexico ExxonMobil holds 2.1 million net acres," Rosenthal said. "We are currently drilling the Hadrian 5 exploration well, which spud in March, within days of receiving approval" from federal officials.

ExxonMobil reported earnings per share rose 61% to $2.14 in the latest quarter. Cash flow from operations and asset sales was $18.2 billion, which included $1.3 billion in divestitures.

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