2012 May Be As Good As It Gets for Exxon

Agenda-Setting Financial Insight.
Feb. 1 2013 3:57 PM

2012 May Be As Good As It Gets for Exxon

Unless oil prices jump, Exxon may have peaked

Photo by Brian Harkin/Getty Images

2012 may be as good as it gets for Exxon Mobil. America’s largest oil company pumped out a near-record profit and its best earnings per share ever. But Exxon, like Chevron, is spending huge sums – almost $40 billion last year - to find and extract reserves. Holding output steady is tough enough. Unless oil prices jump, Exxon may have peaked.

The big boost to the bottom line for America’s two top oil titans didn’t come from their main exploration and production divisions, but from processing and refining. That’s because the oil and gas needed to run this side of the business was cheap and plentiful in the United States, driving down costs. That helped Exxon as a whole generate $44.9 billion of net income - within a whisker of 2008’s $45.2 billion record.


Topping this feat in the future won’t be easy. Earnings from its refining and chemical operations account for just a third of Exxon’s profit and a tenth of Chevron’s. What would move the needle is an improvement in their two main businesses - both companies suffered a decline in production last year despite years of escalating outlays.

Reversing that trend looks hard, though. Oil-rich nations are becoming more protective of their natural resources, so the likes of Exxon have to resort to drilling for more expensive oil trapped in rocks, the ocean depths or the frigid Arctic.

That requires spending much more money, which helps explain why Exxon’s capital spending has jumped by almost a quarter since 2010. Worse, in some instances costs are running ahead of expectations – by 10 percent at its oil-sands project in Canada, the company admitted on Friday. That’s a rare embarrassment for a company obsessed with operational discipline. Chevron’s spending, meanwhile, leapt by 17 percent last year - in large part due to ramping up its liquefied natural gas operations in Australia.

Getting its operations Down Under online should at least provide some relief for Chevron. Exxon, though, has no spurt in output in sight. Aggressive share buybacks may keep earnings-per-share performance high. But boosting net income will require higher oil prices. With global growth tepid, that looks too much for shareholders to hope for.

Read more at Reuters Breakingviews



Meet the New Bosses

How the Republicans would run the Senate.

The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Cheez-Its. Ritz. Triscuits.

Why all cracker names sound alike.

Friends Was the Last Purely Pleasurable Sitcom

The Eye

This Whimsical Driverless Car Imagines Transportation in 2059

Medical Examiner

Did America Get Fat by Drinking Diet Soda?  

A high-profile study points the finger at artificial sweeteners.

The Afghan Town With a Legitimately Good Tourism Pitch

A Futurama Writer on How the Vietnam War Shaped the Series

  News & Politics
Sept. 21 2014 11:34 PM People’s Climate March in Photos Hundreds of thousands of marchers took to the streets of NYC in the largest climate rally in history.
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Tv Club
Sept. 21 2014 1:15 PM The Slate Doctor Who Podcast: Episode 5  A spoiler-filled discussion of "Time Heist."
Brow Beat
Sept. 21 2014 2:00 PM Colin Farrell Will Star in True Detective’s Second Season
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Bad Astronomy
Sept. 22 2014 5:30 AM MAVEN Arrives at Mars
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.