Exxon Mobil Corp. missed Wall Street’s quarterly expectations by 7 cents/share on Thursday, and the world’s largest energy company also reported a 3% drop in oil and gas production — despite higher upstream spending. Meanwhile, Unocal Corp. eclipsed Wall Street expectations, but its production numbers also were lower, which it attributed to asset sales and natural field declines.

Exxon Mobil, headquartered in Irving, TX, reported a 38% hike in quarterly net income to $3.65 billion (55 cents/share), an increase of $1.01 billion over 3Q02. Thomson First Call had forecast earnings of 62 cents/share. Excluding merger effects and other items, earnings increased $721 million from the same period last year, Exxon said. However, third quarter production fell 3%, as contributions from new projects were offset by lower demand for natural gas in Europe and the natural decline of existing oil and gas fields.

Chairman Lee R. Raymond attributed the company’s strong earnings to downstream improvements. Capital expenditures also will continue to grow, he said, consistent with long-term plans to hunt for new energy supplies.

“In the third quarter, Exxon Mobil continued its active investment program, spending $3.83 billion on capital and exploration projects, compared with $3.56 billion last year, reflecting continued growth in upstream spending,” said Raymond. Most of its upstream costs were directed toward the United States; in the first nine months, the company spent $3.049 billion, an increase of $1.282 billion. Outside the United States, Exxon Mobil spent $1.44 billion more in the upstream in the first nine months.

Worldwide, Exxon Mobil’s quarterly natural gas production was down sharply from a year ago, to stand at 8,268 MMcf/d, compared with 9,222 MMcf/d for the same period a year ago. The company said “contributions from new projects and work programs were more than offset by lower demand in Europe, natural field decline in mature areas and reduced entitlement effects.”

In the United States, gas production for sale declined in the quarter to 2,124 MMcf/d, compared with 2,374 MMcf/d for 3Q02. In Canada, production dropped to 943 MMcf/d from 1,020 MMcf/d a year ago. Worldwide, oil-equivalent production for the quarter was 3,862 MMboe/d, compared with 3,990 MMboe/d.

Unocal, headquartered in El Segundo, CA, reported net earnings in the third quarter of $152 million (58 cents/share), compared with $99 million (41 cents) for the same period a year ago. Earnings were down sequentially, however, from the second quarter’s $177 million (68 cents).

Higher commodity prices were offset partially by lower North America natural gas and liquids production, reduced earnings from the company’s minerals operations, and increased administrative and general expense due principally to higher pension-related costs and higher outside litigation support costs. Unocal said its lower North America production was mostly because of natural reservoir declines and the impact of asset dispositions during the first nine months this year. Worldwide, Unocal’s consolidated net daily production in the third quarter averaged 441,000 boe/d, down from 466,000 boe/d in 3Q02.

Unocal is forecasting fourth quarter earnings of 55-65 cents/share, in line with Wall Street’s consensus of 58 cents. The forecast assumes average New York Mercantile Exchange benchmark prices of $30/bbl for crude and $5/MMBtu for gas. The company’s current estimate for fourth quarter production is 430,000-440,000 boe/d.

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