If the first quarter is any indication, Exxon and Mobil needeach other’s help. Exxon’s earnings dropped to $1.02 billion from$1.82 billion in 1Q99 while Mobil experienced a drop from $715million to $471 million. For the merging companies, the fall-offrepresents more than a 33% reduction in net income for each companyfrom 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. Comparedto 1Q98, Exxon lost 40% of its net income. “It was poor, buteverybody expected that,” said Katie Warne, an analyst with EdwardJones. “So, in that sense, the company didn’t go very far beyondexpectations. The one area that performed worse than I expected wasthe U.S. marketing and refining operations. I thought that divisionwould have broken even but it lost money instead.” The U.S.marketing and refining division lost $28 million in 1Q99 comparedto 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 production(E&P) unit experienced losses of $258 million from its 1Q98result of $683 million. Worldwide oil production was down 3.6% to1,564 thousand b/d and worldwide gas production was up 4.5% to 7.5Bcf/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.”
Lucio Noto, Mobil’s CEO, said this transitory problem affectedMobil as well. “Crude oil prices, after deteriorating during theentire year of 1998 and most of the first quarter of 1999, haverecently improved somewhat. However, some pressure is building onmarketing and lubes margins due to the lag effect of rising crudeprices. Business fundamentals, as reflected in these price andmargin swings, continue to be unpredictable in the near term.”
Mobil’s earnings/share were down $0.30/share to $0.58/share inthe first quarter. Its E&P division earned $231 million, downfrom $391 million in 1Q98. In refining and marketing, Mobil earned$291 million, down $34 million from 1Q98. As if to add insult toinjury, the company also accrued a $7 million charge for costsrelated to its merger with Exxon. In production, Mobil reported 902MMcf/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 poorquarter, Noto said. “In the first quarter, all of our businessesexperienced a significant deterioration in industry fundamentalsversus the same quarter last year. However, improved performancedue to our self-help programs contributed about $125 million,helping to offset the deterioration in industry fundamentals.”
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