Exxon misses estimates by most since 2002 as refining sinks

Exxon Mobil Corp., the world’s biggest energy company by market value, trailed analysts’ profit estimates by the most in more than a decade as returns from its fuel-making business plunged.

Second-quarter net income was $6.86 billion, or $1.55 a share, compared with $15.9 billion, or $3.41, a year earlier, the Irving, Texas-based company said in an e-mailed statement today. The per-share result was 34 cents, or 18%, lower than the average of 21 analysts’ estimates compiled by Bloomberg, and the biggest gap since at least the fourth quarter of 2002.

Exxon’s profit from processing crude oil into fuels such as gasoline dropped 94% during the quarter to $396 million as demand and prices declined. The year-earlier quarter included a $7.5 billion net gain comprised mostly of the sale of part of Exxon’s stake in a Japanese refining unit.

“The culprit on the earnings miss was the downstream segment,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston who rates Exxon shares ‘outperform,’ the equivalent of a buy. “We had anticipated a big dip in the absence of last year’s divestitures, but this was much more of a drop than anyone expected.”

Alan Jeffers, an Exxon spokesman, didn’t immediately return a phone message seeking comment on analysts’ profit expectations.

Sales fell by 16% to $106.5 billion. Exxon declined 1.7% to $92.20 at 10:02 a.m. in New York.

Buybacks Reduced

The company said it will reduce share repurchases during the current quarter to $3 billion, $1 billion less than the April-to-June period. Molchanov said the reduction in buybacks was a prudent measure given the volatility in crude prices and Exxon’s need to preserve cash for capital projects.

Profit from oil and natural gas sales declined by 25% to $6.31 billion, according to the statement. Chemical earnings fell by 48% to $756 million. The company produced the equivalent of 4.074 million barrels of crude a day, a 1.9% decline from a year earlier.

Exxon Chairman and Chief Executive Officer Rex Tillerson has been steering exploration to Russia, Liberia and the U.S. Gulf of Mexico to revive crude production after $52 billion in natural gas investments during the past three years floundered amid depressed prices for the furnace and power plant fuel.

Production Declines

Exxon said in March that its combined oil and gas output will fall for a second straight year as the company constructs new platforms and pipelines to bring recent discoveries online.

Tillerson reduced the full-year capital projects budget by 4.5% this year to $38 billion. The company has underperformed its biggest U.S. rival, Chevron Corp., and the broader market this year, with shares advancing 8.3% through yesterday. During that period, Chevron increased 16% and the Standard & Poor’s 500 Index rose 18%.

Global oil prices declined during the second quarter as crude production growth outpaced the expansion in demand by an almost 6-to-1 margin, according to data from the International Energy Agency in Paris. The world’s oil supply increased by an average of 590,000 barrels a day, overshadowing the 100,000- barrel rise in daily demand, the IEA said in a July 11 report.

Brent crude futures, a global benchmark, averaged $103.35 a barrel during the second quarter, down 5% from $108.76 a year earlier.

Rising natural gas prices in the U.S. failed to offset all of the impact on profit from weaker crude and motor fuel prices for Exxon, the largest U.S. gas producer. Benchmark New York Mercantile Exchange gas futures jumped 71% to an average of $4.018 per million British thermal units in the quarter, from $2.354 a year earlier.

Gas comprised more than 48% of Exxon’s overall output in 2012, up from 41% before the company acquired XTO Energy Inc. for $34.9 billion in 2010 to tap into the North American shale drilling revolution.

(Exxon has scheduled a conference call to discuss second- quarter results at 11 a.m. New York time. To access the call, click on LIVE <GO>.)

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