Exxon, Shell Feel Squeeze of Slump in Oil Patch
By RUSSELL GOLD and ANGEL GONZALEZ
"Our results show that no one is immune from global economic conditions," said Kenneth Cohen, a vice president at Exxon, the Texas-based oil company that had a peak market capitalization of half a trillion dollars in 2008 and is still the world's largest publicly traded company.
The companies posted sharply lower second-quarter profits and declining production rates that missed analysts' expectations. Exxon said profit fell 66% from a year earlier to $3.95 billion. Profit at the Anglo-Dutch Shell, one of Europe's largest public companies by market capitalization, dropped 67% to $3.82 billion. (See related article.)
The recession is severely testing the energy giants' strategies, which have been focused on maintaining strong investment in future production while preserving hefty stock-dividend payments to shareholders. Exxon is also engaged in a substantial share-repurchase program.
Shell's new chief executive, Peter Voser, has responded to the downturn by cutting 20% of senior management positions, saying he wanted "fewer people thinking about strategy and more people implementing it."
In contrast, Exxon said it isn't cutting jobs and is sticking with its $29 billion capital-spending plan in 2009. Despite the difficult economic conditions, said Exxon CEO Rex Tillerson, "We continued our capital investment program at near record levels while returning over $16 billion to our shareholders during the first half of the year."
But Exxon said it dialed back its share-repurchase program in the second quarter to $5 billion, down from $7 billion at the beginning of the year. The company said it expects to buy back only $4 billion of shares during the current quarter.
Exxon dipped heavily into its enormous cash stockpile in the second quarter. It ended the quarter with $15.6 billion in cash, down $9.4 billion from the first quarter.
Both companies also had trouble sustaining oil and gas production rates.
In what J.P. Morgan said in a research note would probably be the worst performance among the large global oil companies, Shell said its total production fell 5.3% compared with the year-earlier period. It cited shutdowns in Nigeria because of political unrest, production cuts by the Organization of Petroleum Exporting Countries that affected Shell projects in those countries, and weaker natural-gas demand.
Exxon said its oil and gas production fell 3.1%, to 3.68 million barrels, from a year earlier, the second-lowest quarter since the company was formed in a megamerger in late 1999. A drop in European demand for gas led Exxon to ratchet back production by 12% in the region.
But Exxon reaffirmed its expectations for an annual growth rate of 2% to 3%, noting the growth would occur in the year's second half as gas projects come online in Qatar.
Neither Exxon nor Shell was optimistic about a turnaround in economic conditions -- and therefore energy demand -- in the near future. In a prepared statement, Shell's Mr. Voser said "we are not banking on a quick recovery."
Exxon Vice President David Rosenthal said on a conference call with reporters that "we are operating in a tough business environment. I would tell you it is certainly too early for us to call a bottom."—Guy Chazan contributed to this article.
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