ExxonMobil's profit plateau
ExxonMobil has produced a new quarterly profits record for a US company but soaring costs might mean this is as good as it gets.
breakingviews.com
ExxonMobil's $US11.7 billion second-quarter earnings broke its own mark for the highest a US company has reported. It sounds huge, but it's not surprising that the largest producer of black gold would print money with the price of crude peaking at a record above $140 a barrel during the quarter. But friendly conditions have helped mask challenges that could become much more urgent if oil prices continue their downward trend: falling production and rising costs.
The Texas-based company headed by Rex Tillerson said production decreased a whopping 8 per cent from the same period last year thanks to problems including expropriation in Venezuela and labour strikes in Nigeria.
If crude prices continue to move lower, the production challenge could come into sharper focus. Exxon, like its rivals, is having trouble replenishing its reserves. Multinationals are increasingly being given the cold shoulder by erstwhile government partners, as Exxon itself discovered in Venezuela and BP, in a different way, is finding out in Russia.
The profitability of existing production can come under pressure, too - if not from interruptions as in Nigeria, then from governments tweaking their tax and royalty regimes in their own favour.
Along with an shortage of the right equipment and people, this is all making hydrocarbon resources increasingly difficult and expensive to extract. Exxon's capital and exploration spending in the second quarter was nearly $7 billion, up over a third from last year. Up to a point that reflects the fact that it has the money, but it also has something to do with rising costs.
It all helped make the record quarter slightly less spectacular than analysts had expected and – churlish as it may seem – left the company's shares trading lower. Tillerson still managed to return more than $10 billion to shareholders in the form of share buybacks and dividends. For investors, this could be as good as it gets.
For further commentary visit www.breakingviews.com
ExxonMobil's $US11.7 billion second-quarter earnings broke its own mark for the highest a US company has reported. It sounds huge, but it's not surprising that the largest producer of black gold would print money with the price of crude peaking at a record above $140 a barrel during the quarter. But friendly conditions have helped mask challenges that could become much more urgent if oil prices continue their downward trend: falling production and rising costs.
The Texas-based company headed by Rex Tillerson said production decreased a whopping 8 per cent from the same period last year thanks to problems including expropriation in Venezuela and labour strikes in Nigeria.
If crude prices continue to move lower, the production challenge could come into sharper focus. Exxon, like its rivals, is having trouble replenishing its reserves. Multinationals are increasingly being given the cold shoulder by erstwhile government partners, as Exxon itself discovered in Venezuela and BP, in a different way, is finding out in Russia.
The profitability of existing production can come under pressure, too - if not from interruptions as in Nigeria, then from governments tweaking their tax and royalty regimes in their own favour.
Along with an shortage of the right equipment and people, this is all making hydrocarbon resources increasingly difficult and expensive to extract. Exxon's capital and exploration spending in the second quarter was nearly $7 billion, up over a third from last year. Up to a point that reflects the fact that it has the money, but it also has something to do with rising costs.
It all helped make the record quarter slightly less spectacular than analysts had expected and – churlish as it may seem – left the company's shares trading lower. Tillerson still managed to return more than $10 billion to shareholders in the form of share buybacks and dividends. For investors, this could be as good as it gets.
For further commentary visit www.breakingviews.com
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