In late January, Exxon Mobil Corp. (NYSE: ), the world’s most ubiquitous oil giant, capped off a whipsaw year in the global oil markets by reporting net income of $45.2 billion, an all-time record for corporate profits that shattered the former record it had set a year before.
The number was so big and the results beat Wall Street estimates by so much at a time when the credit crisis was wreaking havoc on so many other sectors that Oppenheimer & Sons (NYSE: ) oil analyst Fadel Gheit couldn’t help but quip that he didn’t think Exxon "will be lining up for any TARP money or government handout anytime soon."
Exxon wasn’t the only heavyweight reaping the benefit of a zooming energy market that had seen crude oil climb to an all-time record of $147 a barrel in July. The combined revenue for Exxon and Chevron Corp. (NYSE: ) for all of last year actually exceeded the gross domestic product (GDP) of all but 16 of the world’s nations, Bloomberg News reported.
What a difference a few months can make.
If the name of the game is corporate profits, the global economic slowdown has transformed some of the world’s biggest oil companies from leaders to laggards.
Global-energy heavyweights Exxon and Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B) yesterday (Thursday) became the latest players to feel the one-two punch of dwindling demand and rising supplies, reporting profit drops of 66% and 67%, respectively.
Exxon’s net income fell to $3.95 billion, or 81 cents a share, compared to $11.68 billion, or $2.22 a share, in the same quarter a year ago. The results were well below Wall Street estimates for earnings of $1.02 a share. Shell’s bottom line fell to $3.82 billion, or 62 cents a share for the second quarter, compared to $1.87 per share in the same period last year.
'Global economic conditions continue to impact the energy industry both in the volatility of commodity prices and reduced demand for products," said Exxon Chairman and Chief Executive Officer Rex Tillerson.
With consumers and companies alike slashing costs in any way possible in an environment of spiraling unemployment and the looming possibility of inflation as a result of government stimulus efforts around the world, Exxon, Shell and other Big Oil companies are feeling the squeeze and are cutting back in almost every way possible.
'Our second quarter results were affected by the weak global economy," Shell CEO Peter Voser when the results were released. "This weakness is creating a difficult environment both in upstream and downstream" oil production.
Shell, for instance, said it’s embarked on a cost-cutting program that will pare billions of dollars in operating expenses. In one bright spot, however, The Netherlands-based oil giant did say that it had increased its second-quarter dividend 5% to 42 cents a share, and Chief Financial Officer Simon Henry said Shell will be able to keep raising the dividend to keep pace with inflation.
Exxon’s shares fell about 1% yesterday to close at $70.72 each.
