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Despite sliding profits in 4th quarter, Exxon sets record for 2008
By Jad Mouawad Published: January 30, 2009
NEW YORK: Exxon Mobil, the largest publicly traded oil company in the world, said Friday that its profit fell 33 percent in the fourth quarter of 2008 as the price of oil declined.
But in a year where oil rose to a record price before having its steepest-ever collapse, Exxon still managed to set a record as the most-profitable U.S. corporation. It earned $45.2 billion in 2008, up from $40.6 billion in 2007.
After riding a tide of swelling earnings in recent years, the once highflying oil sector is beginning to scramble to adjust to a sharp downturn. Oil prices have dropped more than 70 percent since peaking at $147.27 a barrel in July. After averaging $100 a barrel in 2008, oil prices this year are set to decline for the first time since 2001.
Because of its close attention to cost reduction and efficiency, Exxon is weathering the drop in oil prices better than most of its rivals. This past week, both Royal Dutch Shell and ConocoPhillips reported large quarterly losses as asset values dropped because of the fall in oil prices. Chevron on Friday posted a small rise in profit.
In the fourth quarter, Exxon said it earned $7.8 billion, less than expected by analysts and in contrast to $11.66 billion a year earlier. That was Exxon's weakest quarterly performance since the second quarter of 2005, and the first time since 2001 that its performance in the period, typically its strongest quarter, has declined.
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"Weaker crude oil prices, higher operating expenses, lower chemical volumes and the impact of the Gulf Coast hurricanes were partly offset by higher downstream margins," it said. Exxon said that repairs and lower production because of Hurricanes Gustav and Ike lowered earnings by $570 million.
Exxon said that it gave back $40.1 billion to its shareholders in 2008, up 12 percent from 2007, as either dividends or share buybacks. Its spending on exploration, the heart of its business, rose 25 percent, to $26.1 billion, last year.
Exxon pumped about 2.47 million barrels a day of oil in the fourth quarter and produced 9.8 billion cubic feet, or 278 million cubic meters, of natural gas a day. Over all, oil and gas production decreased 3 percent in the fourth-quarter from a year earlier. In some countries, Exxon is entitled to fewer barrels of oil when prices rise.
Chevron said Friday that its net income rose 1 percent, to $4.9 billion, in the quarter. For the year, the company's earnings rose 28 percent, to $24 billion.
Faced with the sharpest downturn in 25 years, most oil companies are trimming investments and cutting costs. In recent months, projects have been canceled or deferred in Australia, Canada and Saudi Arabia.
In some cases, companies are waiting for costs to fall. In others, they are deferring expensive projects that have become unprofitable at today's lower oil prices. The collapse of the financial sector has made it much harder, and far more expensive, for companies to finance multibillion-dollar projects. In many cases, financing has simply dried up. Energy executives have warned in recent days that oil prices have fallen too fast, and too low, to pay for new and more expensive projects.
Tony Hayward, the chief executive of BP, said Thursday at the World Economic Forum, in Davos, Switzerland, that prices of $60 to $80 a barrel were "appropriate" to sustain investments, especially for producers from the Organization of Petroleum Exporting Countries.
Oil was trading Friday afternoon at $41.75 a barrel in New York. Many experts have warned that there could be a sharp rise in prices when consumption eventually picks up. Fatih Birol, the chief economist at the International Energy Agency, estimates that around $100 billion in projects, mostly outside of OPEC, have been delayed or canceled over the past year because of weaker oil prices.
The Exxon chief executive, Rex Tillerson, has signaled that the company may actually increase its investments by 20 percent this year. It is sitting on nearly $40 billion in cash that could provide it with a strategic war chest to make acquisitions, according to analysts.
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