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Exxon, Mobil: United They Stand But In 1Q99 They Fell

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&ampP) 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&ampP 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."

John Norris

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