Exxon Profit Falls as Industry Reels From Market Crash

By Joe Carroll

(Bloomberg) — Exxon Mobil Corp. reported a steep drop in fourth-quarter profit on lower prices and declining production as the rout in oil ushered in an era of frugality for an industry that reaped $3.2 trillion in sales last year.

Exxon, the world’s biggest oil producer by market value, cut share repurchases for the current quarter by 70 percent after oil and natural gas output declined more than expected, U.S. refining losses reached $1 million and cash flow tumbled 36 percent company-wide. A 9.5 percent increase in dividends declared in April remains intact, the company said today. Exxon has raised its dividend for 13 straight years.

“The last thing any of these oil majors want to do is cut the dividend,” said Ed Cowart, who manages $640 million at Eagle Asset Management Inc. in St. Petersburg, Florida. “They’d cut the chairman’s pay before they’d touch the dividend — it’s that important to them.”

Exxon’s net income fell to $6.57 billion, or $1.56 a share, from $8.35 billion, or $1.91, a year earlier, the Irving, Texas- based company said in a statement Monday. Per-share earnings were 22 cents above the $1.34 average of 19 analysts’ estimates compiled by Bloomberg.

Exxon follows Chevron Corp., ConocoPhillips and other oil titans in posting deep profit declines after a shale-driven supply glut hammered crude prices. Layoffs, drilling delays and more than $40 billion in spending cuts have already been announced as oil companies scramble to ensure they have enough cash on hand to continue shelling out dividends to investors.

Belt-Tightening

Oil producers, drillers, equipment suppliers and steelmakers have slashed tens of thousands of jobs after crude lost almost 60 percent of its value in seven months, an oil- market slump not seen since the worldwide financial crisis of 2008-2009. Chevron Corp. Chairman and Chief Executive Officer John Watson last week warned that belt-tightening will intensify if the price decline deepens.

Exxon’s production of oil and gas fell 3.8 percent during the quarter to the equivalent of 4.054 million barrels a day, according to the statement. That was lower than any of the five estimates from analysts in a Bloomberg survey.

The company spent $11.57 billion on dividends in 2014, a 6.4 percent increase from a year earlier. For the full year 2014, capital-projects expenditures fell 9.3 percent from 2013 to $38.54 billion.

Russian Setback

For Exxon, oil’s crash during the second half of 2014 added to the sting of international sanctions imposed against Russia that halted the American company’s exploration ambitions in one of the world’s biggest untapped petroleum caches.

Exxon was forced to halt cooperation with Moscow-based OAO Rosneft on a billion-barrel Arctic Ocean discovery in October after the U.S. and European Union forbade collaboration with Russia’s offshore oil and shale industries. The impact was particularly harsh for Exxon, as Russia represents its largest exploration prospect outside the U.S.

Exxon held 11.4 million acres of Russian drilling rights at the close of 2013, second only to the 15.1 million acres the company held in the U.S., according to U.S. Securities and Exchange Commission filings.

Brent crude, the benchmark for most of the world’s oil, fell 30 percent to an average of $77.07 a barrel during the final three months of 2014. Every $10 drop in crude prices costs the descendant of John D. Rockefeller’s Standard Oil Trust $2.84 billion in annual operating cash flow, according to Barclays Plc.

Shares fell 1 percent to $88.33 at 12:55 p.m. in New York.

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