Shell and Exxon Mobil Drop On Earnings Misses

Michael Teague |

Two of the world’s largest oil companies reported earnings on Thursday, and the results are not looking too good.

Exxon Mobil (XOM) , the world’s largest oil company, released a disastrous earnings report that showed the company struggling in most segments. For the second quarter of 2013, Exxon’s net income came in at $6.86 billion, or $1.55 per share on revenue of $106.5 billion, compared to the prior-year quarter when the company made $15.9 billion, or $3.41 per share on revenue of $127.36 billion. Expectations had been for earnings of $1.89 per share, on revenue of $101.8 billion.

Comparatively, the numbers were disappointing, even when factoring out the $7.5 billion gain the company made during the same period in 2012 from the restructuring of its Japanese concerns.

The major problems were to be found in a slowdown in production to 4.07 million barrels in oil equivalent per day, with lower output from the Asia-Pacific and Middle East regions, as well as anemic demand for natural gas out of Europe. Crude processing margins contracted by 12 percent during the period, with declining demand and oil prices in the United States, as the price per barrel of Brent crude for Q2 was at a $5 discount on the previous year.

Furthermore, earnings from the Exxon’s chemicals segment came in at $756 million, half of what they were the prior year, though a great deal of this was due to the sale of part of its stake in Japanese refining.

News of the company’s poor second quarter performance come on the same day as a review of the March Pegasus pipeline leak in Mayflower, Arkansas found that a manufacturing defect in the electronic resistance welded pipe was responsible for spilling about 5,000 barrels of dirty Canadian crude. US regulators said that the pipeline must stay shut until it can be restarted safely.

Meanwhile, Royal Dutch Shell ($RDS.A) also released earnings early on Thursday, showing that its profits were, like Exxon’s, down over 50 percent on the prior year period.

During the second quarter, Shell, Europe’s largest oil firm and the third largest in the world, reported net earnings, excluding one-time items, of $4.6 billion, compared to the prior year period when the company made $5.7 billion, and well short of the $6 billion that had been expected by analysts.

In an interview with CNBC, CEO Peter Voser expressed his disappointment with the results, and spoke a great deal about attacks on its operations in Nigeria. Voser explained that some 100,000 barrels of crude, along with 100 tonnes of liquid natural gas were lost as a result of the sabotage, and warned about both “significant environmental damage” that could cost the Nigerian government $12 billion per year in revenue. In a comment that could be interpreted in a variety of ways, the CEO stated that while the company would play its part in resolving the issue, “these are problems Shell cannot solve alone.”

But Nigeria is only one of the company’s many areas of operations, and while problems in the increasingly unstable country came at a cost of $250 million, cannot alone explain Shell’s heavy balance sheet. Production was down during the recently ended period over 1 percent to 3.06 million barrels daily. Maintenance costs at fields in Brazil, Canada, and the UK were also a significant expense.

Like its colleague Exxon, the company took a hit from lower oil, natural gas, and chemical prices during the period as well as a write-down on the value of its North American shale operations resulting from a $2.2 billion impairment charge.

Both companies lowered their previously stated production forecasts, and both incurred greater exploration expenses. Second quarter earnings from big oil have been underwhelming so far, with BP Plc (BP) , Total SA (TOT) , and Eni SpA (ENI) all coming up short-handed. Chevron (CVX) , the world’s second-largest oil company, reports on Friday.

Shares for Shell dropped over 5 percent to $67, while Exxon Mobil was down 1.7 percent to $92 in midday trading.

[Image: Exxon Mobil truck, courtesy of Flickr Creative Commons]

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Companies

Symbol Name Price Change % Volume
CVX Chevron Corporation 115.81 0.64 0.56 5,771,551
ENI Enersis Americas SA ADR (Sponsored) n/a n/a n/a n/a
TOT Total S.A. 49.16 0.16 0.33 2,048,758
XOM Exxon Mobil Corporation 89.00 0.68 0.77 8,021,683
BP BP p.l.c. 36.01 -0.18 -0.50 4,633,089
PUNL Northern Minerals & Exploration Ltd. n/a n/a n/a 0
RDSA Royal Dutch Shell Plc ADR Sponsored Repstg A Shs n/a n/a n/a 0

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