ExxonMobil, Chevron Post Record 2007 Earnings

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.

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.

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.

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.

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.

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