Shell, Mobil profit falls by most in 10 years

Exxon Mobil and Royal Dutch Shell, the world's biggest energy companies, posted their largest declines in second-quarter profit in more than a decade after slumping fuel demand spurred a record drop in oil prices.

Net income at Exxon Mobil tumbled 66 per cent to US$3.95 billion ($6 billion), according to a statement today by the Texas-based company. Shell, based in The Hague, said its profit slid 67 per cent to US$3.8 billion.

In New Zealand, Shell and Mobil are reviewing their downstream operations, with a view to selling more than 400 petrol stations as well as stakes in New Zealand Refining.

The oil giants' declines were the third in a row for both companies, and Exxon Mobil's per-share profit excluding one-time costs fell 15c short of the average of analyst estimates compiled by Bloomberg. New York oil futures fell by more than half to an average of less than US$60 a barrel, the biggest second-quarter drop since the contracts began trading in 1983, as the global recession eroded demand for diesel, natural gas and other fuels.

"Prices are down big time, and that pulled down results across the board," said William Andrews, who holds Shell stock among the US$7 billion in assets he helps manage at C. S. McKee & Co. in Pittsburgh. "You're comparing against a quarter when prices were over the moon, so everybody looks bad."

Exxon Mobil fell 71c, or 1 per cent, to US$70.72 in New York Stock Exchange composite trading. Shell, which exceeded analyst earnings estimates, rose 12 pence to 1600 pence in London. Both stocks have dropped 11 per cent this year.

Shell said it plans to cut capital spending by about 10 per cent and to make additional job cuts. The company said it's not ruling out freezing its dividend at the current level. Exxon Mobil said it will cut stock buybacks to US$4 billion in the current quarter from US$5 billion in the second quarter.

"If we don't start to see significant improvement in underlying demand globally by the fourth quarter of this year, I would expect that you will begin to see capex reductions announced with respect to 2010 budgets that are a little more draconian than many expect," said Ted Harper, who helps manage about US$6.1 billion at Frost Investment Advisors in Houston. "You'll probably also begin to see possible dividend reductions at some of the larger integrateds."

Demand for petroleum-based fuels fell at more than five times the pace of the second-quarter drop in worldwide oil output, according to the International Energy Agency in Paris. The result was growth in a global oil glut, depressing prices.

The world's appetite for crude won't recover to 2008 levels before 2011, the agency said. In the US, demand has fallen 3.5 per cent in the past year.

"Energy demand is weak," Shell chief executive officer Peter Voser told analysts today. "There is excess energy-supply capacity in the world today and industry costs remain high. Conditions are likely to remain challenging for some time, and we are not banking on a quick recovery."

London-based BP, Europe's second-biggest oil company, said on July 28 that its net income dropped 53 per cent to US$4.39 billion. Houston-based ConocoPhillips, the third-largest US oil company, yesterday said that its profit declined 76 per cent to US$1.3 billion.

Exxon Mobil's profit was its lowest for any quarter in five years. Revenue slid 46 per cent to US$74.5 billion. The company's revenue for the first six months of this year was just 0.3 per cent higher than its total in 2008's second quarter.

Exxon Mobil's oil and gas output fell 3.3 per cent to the equivalent of 3.68 million barrels a day, the lowest second-quarter production since Exxon's 1999 acquisition of Mobil Corp. The drop in output, coupled with lower commodity prices, slashed earnings from oil and gas wells by 62 per cent to US$3.8 billion.

Exxon Mobil and Shell produce one in each seven gallons of refined fuels in the world.

- BLOOMBERG