Exxon Mobil 1Q profit drops 11 percent

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By CHRIS KAHN, Associated Press

NEW YORK (AP) — It was an especially tough quarter for Exxon Mobil.

The company produced less oil and natural gas. Profits dropped at its chemical plants and U.S. refineries. And its overall net income fell 11 percent, the first decline in quarterly earnings since late 2009.

The results, announced Thursday, signaled a tough year ahead for Exxon and the rest of the petroleum industry. Even after spending billions of dollars hunting for oil at the bottom of the ocean, in the frigid waters of the Arctic and deep underground in North American shale rock, Big Oil is failing to keep up with growing world oil and gas demand.

"When you get as big as Exxon, it's hard to keep growing," said Blake Fernandez, an analyst with Howard Weil Inc. "There's only so many projects you can take on at the same time."

On top of that, the cost of oil, which rose 14 percent in the U.S. during the quarter, kept Exxon from earning bigger profits on the chemicals and gasoline it sold.

There was some positive news for investors. The company sold oil for higher prices around the world, and international natural gas prices rose by 16 percent. Profit rose for its international refining operations. Exxon also plans to boost its quarterly dividend by 21 percent, the largest increase since it 1975, making it the biggest corporate dividend payer.

Even so, Exxon shares fell 78 cents to $86.07

Exxon isn't alone in its struggles. Its production of oil and natural gas was flat last year. Chevron Corp., BP and Royal Dutch Shell also produced less.

In the first three months of this year, Exxon's output fell 5.5 percent, twice the rate expected for the year.

Chevron will report its first-quarter results on Friday and BP will report next week. Both are expected to see lower production, though analysts say first-quarter profits should rise slightly at Chevron. BP's earnings will likely fall.

A handful of trends are keeping oil companies from pumping more oil and gas. Existing fields produce less as they get older. New wells are tougher, and more expensive, to find.

And some of the world's best resources are controlled by foreign governments that want to keep their oil revenue at home. They typically offer contracts that limit the amount of oil and gas that partners, such as Exxon, can sell as prices rise.

Exxon must find new sources of crude to get its production back up. It will plow $185 billion into capital projects over the next five years. That's up 29 percent from the previous five-year period, and much of the budget is devoted to finding more oil. Exxon says production will eventually grow about 2-3 percent annually over the next several years.

The company expects production soon from oil fields in Canada and wells in Angola and Nigeria. It's also boosting production in Iraq, and it's expanding its drilling operation in parts of North Dakota, the Midwest and Appalachia.

Exxon also recently signed a deal with Russian oil giant Rosneft to search for oil and gas in the Arctic and the Black Sea. Drilling could begin as early as 2014, The Russian Arctic is in such a remote and frigid part of the world, however, that moving quickly will be difficult, the company said. It "will require all of the technological and operational capabilities to explore," said David Rosenthal, Exxon's chief of investor relations.

Exxon, America's largest energy company earned $9.45 billion, or $2 per share, from January to March. Revenue rose 8.8 percent to $124.1 billion.

The results were short of Wall Street expectations.

"The lower production is certainly a negative," said Morningstar Inc. analyst Allen Good.

Profit declined 10 percent for Exxon's exploration and production business and it dropped 54 percent for its chemical business. Profit fell 13 percent at Exxon's U.S. refineries, though profits more than doubled at overseas refineries.

Rosenthal wouldn't comment about reports that the company has been banned from bidding for more contracts in Iraq next month. Iraq's state run oil company said it will turn away future offers from Exxon after the company signed deals with the self-ruled Kurds last year against the wishes of the Iraqi central government.

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Follow Chris Kahn on Twitter at http://twitter.com/ChrisKahnAP .

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