Big Oil's Disappointing Earnings: No Need to Worry

Includes: BP, COP, CVX, MRO, RDS.A, XOM
by: Neil Kokemuller

Big oil companies like Exxon Mobil (NYSE:XOM) and Marathon Oil (NYSE:MRO) are likely among those most appreciative that sectors of the economy, like the car industry, have dominated news in recent months. While the Big 3 automakers have come under fire for poor corporate management, credit problems, and use of bailout funds, Exxon and others are basking in the glow of relative silence.

During late 2007 and for much of 2008, Exxon was the epitome of the big oil company that was the subject of congressional and consumer ire. The company established all time records for company profits in a month, in a quarter, and in a year and then bested them. Exxon recorded $45.2 billion in earnings for 2008. In the meantime, Americans were paying in excess of $4 per gallon in gas during the middle of 2007.
Sadly, Exxon reported a lowly $4.6 billion in earnings for the quarter January-March on Thursday (April 30). The company would likely trade a few jabs from politicos outraged that a company would pocket such extravagant earning while consumers paid dearly at the pumps.
With oil prices currently near $51, and gas running around $2 per gallon, oil companies have had to operate with fewer profit margins.
Despite oil prices that are about three times below highs of mid-2007, Exxon has only lost about half its $10.9 billion in profit since the first quarter of 2008. The company credits its ongoing emphasis on strict expense control, believing that its economic focus during strong times makes it much better off during slower economic times.
The $4.6 billion that Exxon earning during the first part of 2009 amounts to $.92 per share. During the same timeframe one year ago, the $10.9 billion in earnings equaled $2.02 per share. The third quarter of 2003 was the last time Exxon posted such a “weak” earnings report. Analysts had forecast $.95 per share for Exxon.
Marathon Oil (MRO) also announced disappointing earnings for its first quarter Thursday. The company made $282 million, for $.40 per share. This was down 61 per cent from its $731 in earnings last year during the first quarter.
Other oil companies have recently reported lower first quarter earnings, including ConocoPhillips (NYSE:COP), Royal Dutch Shell (NYSE:RDS.A), and BP (NYSE:BP). Chevron (NYSE:CVX) reports Friday. Oil prices have hovered around $50 the last few weeks. Some analysts have called for $75 per barrel rates by year’s end. The rise in oil is expected to coincide with an economic recovery, and stock gains. The logic is that as economic conditions improve, consumers will travel more and businesses will expand and use for fuel for transportation of people and goods. Americans can sleep at night knowing that shareholders in big oil can expect a much brighter future.

Disclosure: none