The Rising Influence of Rising Affluence

[DewDiligence]

Big Jump in Refining Lifts Exxon's 2Q10 Profit

[Oil accounted for 58% of XOM’s 2Q10 boe production vs 64% in 2Q09; 2Q10 results exclude a meaningful contribution from XTO because the merger closed only three days before the end of the quarter.]

http://online.wsj.com/article/SB10001424052748703578104575396922641891674.html

›JULY 30, 2010
By ISABEL ORDONEZ

HOUSTON—Exxon Mobil Corp.'s second-quarter earnings jumped 91%, helped by higher commodities prices and a surge in refining profits and production.

Exxon's quarterly results released Thursday show the rebound of the refining business, which was badly hurt last year by a decline in fuel demand during the economic downturn. Refining margins have slowly improved as the economy has recovered, boosting earnings of companies with large downstream businesses that refine crude oil into gasoline, diesel and other products.

Exxon's smaller rival, ConocoPhillips, said Wednesday its second-quarter earnings tripled, while Chevron Corp. is expected to post substantially higher earnings Friday. The sustainability of the recovery in the refining business is highly uncertain, however, as demand could decline if the recovery slows.

"Exxon showed improvements across the board but its refining results were particularly strong," said Fadel Gheit, analyst at Oppenheimer & Co. "Major oil companies are benefiting from improved refining margins."

Exxon, the world's biggest oil company not under state control, reported a profit of $7.56 billion, or $1.60 a share, up from $3.95 billion, or 81 cents, a year earlier. Revenue rose 24% to $92.48 billion.

The results widely beat analyst's profit expectations of $1.46 a share, mainly due to lower corporate charges and better-than-expected results in the downstream business, according to Credit Suisse. The company's shares rose in early trading but closed down 57 cents at $60.34 in New York Stock Exchange composite trading Thursday.

Exxon's downstream earnings were $1.2 billion in the second quarter, up from $512 million a year earlier. Earnings at Exxon's oil- and gas-production segment increased 40% from a year earlier, totaling $5.3 billion, while earnings in the chemicals segment more than tripled to $1.37 billion.

The Irving, Texas-based company said oil-equivalent production increased by 8% over the year-earlier period to four million barrels a day, driven by start-ups of liquefied-natural-gas projects in Qatar. Excluding the impacts of production-sharing contracts, quotas imposed by the Organization of Petroleum Exporting Countries and divestment, Exxon's production was up about 10%.

Speaking to analysts on a conference call, David Rosenthal, Exxon's vice president of investor relations, said the company's diversified global portfolio has allowed it to successfully avoid the effects of a drilling ban imposed by the U.S. government in the Gulf of Mexico following the explosion aboard the Transocean Ltd. drilling platform Deepwater Horizon on April 20.

"You're starting to see some of the benefits of having a very diverse portfolio," Mr. Rosenthal said.

Due to the moratorium, Exxon suspended drilling activities at its Hoover Diana platform and delayed an appraisal well at the Hadrian discovery in the Gulf of Mexico. But the company said its production outlook for the rest of the year is unlikely to be affected due to the moratorium.

There is a "slight delay in the Gulf of Mexico, but we are progressing full speed ahead in the rest of world," he said.

Exxon plans to increase drilling for unconventional natural-gas resources in various areas onshore in the U.S. and also in offshore Brazil.

"We plan to further increase activity in the Haynesville, Fayetteville, Marcellus, Eagle Ford, and Bakken shale plays," Mr. Rosenthal said. The company was still planning to start drilling its third well in Brazil in the fourth quarter.

Exxon was in discussions with the Brazilian government about drilling a third well in the so-called presalt area after striking a dry hole last year at the Guarani well.

Mr. Rosenthal also confirmed Exxon is leading a multibillion joint water-injection project to be set up in southern Iraq to help offset a water problem facing oil-field development.

Exxon is the operator of Iraq's supergiant West Qurna phase 1 oil field. Mr. Rosenthal declined to give details about the company's plans for the field, but he said that "things are progressing well."‹