Lagniappe
Global
Insight :
ExxonMobil,
Chevron post record 2007 earnings
ExxonMobil and Chevron, the first- and second-largest oil companies
in the United States, have announced record earnings, even as
output fundamentals appear bleak.
Global Insight Perspective
Significance
ExxonMobil and Chevron have announced record earnings of US$41.6
billion and US$18.7 billion respectively-the largest ever by
each company.
Implications
These profits are coming at a time when liquids production by
both supermajors has been showing flat if not negative growth.
Downstream performance has been rather weak with extended refinery
maintenance resulting in reduced throughput rates, as well as
ample product supplies driving down price differentials with
crude oil prices, which themselves remain high.
Outlook
Given that it is becoming more difficult to replace reserves
lost through production, the supermajors will be hoping that
increased spending on capital expenditure exploration activities
yields results in the form of new discoveries.
ExxonMobil
ExxonMobil has again broken its previous earnings record for
the year to maintain its title as holder of America's largest
ever annual corporate profits. The largest oil company in the
United States grew its annual earnings in 2007 to a gargantuan
US$40.6 billion, up 2.8% from US$39.5 billion announced in 2006.
Quarterly earnings jumped by a respectable 13.8% to US$11.7 billion
from the fourth quarter of 2006, with the company's upstream
segment showing a very healthy jump of 32% to US$8.2 billion.
Quarterly downstream earnings meanwhile managed to grow nearly
16% to US$2.3 billion. Over 2007, upstream profits are up just
1% to US$26.5 billion, with downstream earnings also showing
a gain, of 13.2% to US$9.6 billion.
ExxonMobil Earnings (US$ million)
Q4
2007 Q4 2006 Change 2007 2006 Change
Upstream
8,204 6,220 31.9% 26,497 26,230 1.0%
Downstream
2,267 1,960 15.7% 9,573 8,454 13.2%
Total
11,660 10,250 13.8% 40,610 39,500 2.8%
On the crude production front, the company has seen its liquids
output drop both quarter-on-quarter (q/q) and year-on-year (y/y).
Fourth-quarter net liquids production stood at an average of
2.52 million b/d, compared with 2.68 million b/d this time last
year-representing a fall of 6%. On the year, net liquids output
fell by 2.4% to 2.62 million b/d. Natural gas production during
the fourth quarter grew by 12% to 10,414 mmcf/d, while yearly
output rose by just 0.5% to rest at 9,384 mmcf/d.
ExxonMobil
Production
Q4 2007 Q4 2006 Change 2007 2006 Change
Net Liquids ('000 b/d)
2,517 2,678 -6.0% 2,616 2,681 -2.4%
Natural Gas (mmcf/d)
10,414 9,301 12.0% 9,384 9,334 0.5%
Total
Net Oil Equivalent ('000 b/d)
4,253 4,228 0.6% 4,180 4,237 -1.3%
Overall net oil equivalent production at ExxonMobil grew by
0.6% in the latest quarter, compared to this time last year,
to 4.25 million b/d, but contracted 1.3% during the year as a
whole to 4.18 million b/d.
Refinery inputs at the supermajor grew by only 0.3% in the fourth
quarter to 5.72 million b/d, while inputs contracted by 0.6%
during 2007 to rest at 5.57 million b/d. Global sales of refined
products fell by 4.3% q/q and 2% y/y, to 7.13 million b/d and
7.1 million b/d, respectively.
Chevron
Chevron has also issued its latest earnings report, revealing
a jump in both q/q and y/y earnings. In the fourth quarter of
2007, the second-largest oil company in the United States posted
earnings growth of over 29%, to US$4.88 billion, from US$3.77
billion over the same period last year. The vast share of this
income was directly attributable to the upstream business segment,
which registered growth of over 66% to US$4.84 billion from US$2.91
billion in the fourth quarter of 2006. Downstream earnings, meanwhile,
fell by nearly 79% q/q to US$204 million, down from nearly US$1
billion.
Chevron
Earnings (US$ million)
Q4
2007 Q4 2006 Change 2007 2006 Change
Upstream
4,839 2,909 66.3% 14,816 13,142 12.7%
Downstream
204 954 -78.6% 3,502 3,973 -11.9%
Total
4,875 3,772 29.2% 18,688 17,138 9.0%
Seen from the perspective of the year as a whole, Chevron has
managed to grow total revenue by 9% to US$18.69 billion, up from
US$17.1 billion in 2006. Over the year, the company's upstream
segment grew by nearly 13% to US$14.82 billion, while the downstream
segment contracted by 12% to US$3.5 billion.
Chevron
Production
Q4 2007 Q4 2006 Change 2007 2006 Change
Net Liquids ('000 b/d)
1,748 1,812 -3.5% 1,756 1,732 1.4%
Natural Gas (mmcf/d)
5,083 4,849 4.8% 5,019 4,956 1.3%
Total
Net Oil Equivalent ('000 b/d)
2,613 2,655 -1.6% 2,619 2,667 -1.8%
In terms of output, the picture is somewhat less rosy than implied
from the earnings report, with crude production down some 3.5%
q/q to an average of 1.75 million b/d. Natural gas production,
however, grew by nearly 5% q/q to 5,083 mmcf/d. Over the course
of 2007, output of both crude and gas has grown by just 1.4%
and 1.3% respectively. Seen as a whole, net oil equivalent production
is down 1.8% y/y to 2.62 million b/d, due to reduced output from
the Athabasca Oil Sands project in Canada as well as the conversion
of the Boscan Operating Service agreement in Venezuela to an
equity affiliate. Global sales of refined products dropped by
3.8% on the year to 3.48 million b/d, while refinery input rates
dropped by a more pronounced 7.8% to 1.83 million b/d. Sales
of natural gas, however, jumped by 8.4% to 11,416 mmcf/d.
Outlook and Implications
Both ExxonMobil and Chevron have been experiencing the same
set of circumstances in terms of operating in an environment
of near record-high oil prices, and as seen in the results shown
here, this has very much been a mixed blessing. Although both
U.S. supermajors have managed to grow their yearly earnings to
new records, there is an understanding that much of this growth
has been the direct result of those oil prices, rather than improved
underlying fundamentals such as increased production, higher
refinery input rates, and a healthy reserve-to-production ratio.
In the latter case, the reality is that these firms are finding
it extremely difficult at present to replace reserves lost through
production-itself a key metric and indicator of future performance.
This is down to many reasons, including foreign governments taking
a larger share of profits in order to net more exposure to the
oil price windfall, resource nationalism making the exploitation
of new plays potentially quite risky-if not downright impossible,
and the fact that most of the world's easy-to-find resource bases
have either already been, or are in the process of being, exploited.
This has necessitated looking elsewhere for reserves, and in
some cases closer to home. Canada's oil sands are seen as one
new play with significant potential, and indeed both companies
have stakes here. The U.S. Gulf of Mexico is also another region
with massive remaining potential, especially in the deepwater
sections. Here, both Chevron and ExxonMobil are able to bring
their massive technological supremacy to bear to reach resources
previously considered inaccessible, and it is from here that
we are increasingly likely to see new discoveries being announced,
with efforts spurred on by examples such as Brazil's recent 8-billion-barrel
Tupi oil discovery offshore Rio de Janeiro state.
Profit levels such as those announced by the supermajors are
unlikely to be viewed by Americans in a positive light when the
prices paid for refined products have been hitting record highs
over the course of 2007. The connection between total profits
and refined products prices is considered direct by many, but
it is clear that downstream performance by most industry players
has been rather lacklustre due to an inability by the companies
involved to fully pass on the cost of more expensive oil. So
while high oil prices may have inflated the upstream business
segments of both ExxonMobil and Chevron, it has to be noted that
this has occurred in conjunction with flat, if not negative,
output growth, as well as tighter refining margins.
For its part,
ExxonMobil is marketing its latest record profit announcement
as "today's energy earnings to meet tomorrow's
energy demands" and while the companies have certainly been
channelling significant sums into exploration activities, it
is unfortunately not at all clear whether this will be sufficient
to meet this stated ambition. In 2007, ExxonMobil spent US$20.85
billion in capital and exploration expenditures, with Chevron
spending about US$20.03 billion. Given cost escalations and project
deadline extensions brought on by this and qualified-manpower
shortages, the supermajors can only hope that these increased
expenditures yield results down the line.
Lawrence
Poole is an Global Insight's energy analyst.
(lawrence.poole@globalinsight.com).
Petroleumworld does not necessarily share these views.
Editor's note: For more information on Global Insigth, contact:
Catarina Feria-Walsh Global Insight, catarina.walsh@globalinsight.com.
/ www.globalinsight.com.
Petroleumworld reprint this article in the interest of our readers.
Petroleumworld does not necessarily share these views.
All
comments posted and published on Petroleumworld, do not reflect
either for or against the opinion expressed in the comment as
an endorsement
of Petroleumworld. All comments expressed are private comments
and do not necessary reflect the view of this website. All comments
are
posted and published without liability to Petroleumworld.
Fair
use Notice: This site contains copyrighted material the use of
which has not always been specifically authorized by the copyright
owner. We are making such material available in our efforts to
advance understanding of issues of environmental and humanitarian
significance. We believe this constitutes a 'fair use' of any such
copyrighted material as provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107. For more information
go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All
works published by Petroleumworld are in accordance with Title
17 U.S.C. Section 107, this material is distributed without profit
to those who have expressed a prior interest in receiving the included
information for research and educational purposes. Petroleumworld
has no affiliation whatsoever with the originator of this article
nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld
encourages persons to reproduce, reprint, or broadcast Petroleumworld
articles provided that any such reproduction identify the original source,
http://www.petroleumworld.com or else and it is done within the
fair use as provided for in section 107 of the US Copyright
Law. If you wish to use copyrighted material from this site for
purposes of your own that go beyond 'fair use', you must obtain
permission from the copyright owner.
Internet
web links to http://www.petroleumworld.com are appreciated
Petroleumworld
welcomes your feedback and comments: editor@petroleumworld.com.
By using this link, you agree to allow E&P to publish your
comments on our letters page.
Petroleumworld
News 02/07/08
Copyright© 2008
Global Insigth. All rights reserved.
Send
this story to a friend
Your
feedback is important to us!
We invite all our readers to share with us
their views and comments about this article.
Write
to editor@petroleumworld.com
Any
question or suggestions, please write to:
editor@petroleumworld.com
Best
Viewed with IE 5.01+
Windows NT 4.0, '95, '98 and ME +/ 800x600 pixels
