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Lower oil prices pressure Exxon's earnings

Exxon Mobil said Thursday first-quarter earnings fell 58 percent from a year ago, its lowest profit in more than five years, as crude and gas prices fall sharply.
/ Source: The Associated Press

Exxon Mobil Corp. said Thursday first-quarter earnings fell 58 percent from a year ago, its lowest profit in more than five years, as the world's biggest publicly traded oil company saw crude and gas prices fall precipitously.

The quarterly profit also fell short of Wall Street expectations and company shares fell 2 percent.

Exxon Mobil, based in Irving, Texas, said earnings for the first three months of the year came to $4.6 billion, or 92 cents a share, down from $10.9 billion, or $2.02 a share, a year ago. On average, analysts polled by Thomson Reuters were looking for net income of 95 cents a share.

The last time Exxon had lower earnings was the third quarter of 2003, when its net income was $3.65 billion.

Revenue tumbled 45 percent to $64 billion from $116.9 billion a year ago. Analysts, on average, had forecast revenue of about $54 billion.

Yet even as many producers postpone or even cancel some oil and gas projects, Exxon increased capital spending in the first quarter by 5 percent from a year ago, evidence of its strong balance sheet. Exxon has said its capital spending this year is expected to reach $29 billion, up from $26.1 billion in 2008.

"In spite of the dramatic changes to the global economic environment, Exxon Mobil is maintaining its long-term focus and disciplined approach to capital investment," Rex Tillerson, the company's chairman and chief executive, said in a statement.

Exxon also spent $7.9 billion buying back its own shares during the quarter.

The profit falloff was no surprise given the steep drop in oil and natural gas prices from a year ago. This time last year crude was in the triple digits, in the midst of a historic ride to almost $150 a barrel. But prices spent the rest of the year retreating and have hovered around $50 a barrel since March.

Still, anytime Exxon Mobil reports such a big profit decline, it's likely to prompt a double-take. Just three months ago, it posted a $45.2 billion profit for all of 2008, breaking its own earnings record for a U.S. company.

The oil giant, which replaced Wal-Mart atop the 2009 Fortune 500 list of largest U.S. companies, has made a habit of setting quarterly and annual profit marks in the past few years amid rising commodity prices.

It's a different story these days.

Exxon, which pumps 3 percent of the world's oil, said earnings at its exploration and production, or upstream, business fell 60 percent to $3.5 billion. The company said lower crude prices reduced earnings by about $4.4 billion, while falling natural gas prices lowered results by about $500 million.

Overall production was roughly flat from a year ago.

On the refining and marketing side, earnings were down about 8 percent from a year ago to $1.1 billion. The company said it was hurt in part by lower volumes and higher operating expenses, although margins improved.

Exxon wasn't alone reporting sharply lower year-over-year profits among major oil companies. The numbers were even uglier for ConocoPhillips (down 80 percent) and Europe's BP PLC and Royal Dutch Shell PLC (both down 62 percent.) Chevron Corp., the No. 2 U.S. oil company behind Exxon, is scheduled to report earnings Friday.

Also Thursday, Marathon Oil Corp., the fourth-largest U.S. integrated oil company, said its profits for the first three months of 2009 fell 61 percent.

Exxon shares fell $1.43 to $67.01 on Thursday.