Big Energy companies announce 2008 record results

COMMENT: It may be economic collapse for the rest of us, but the big integrated energy companies cruised through their 2008 fiscal year with record results. The dismal final months of the year weren't bad enough to neutralize the incredible revenue momentum built up earlier in the year.

$45.2-billion: Exxon's record year

HOUSTON — — Exxon Mobil Corp. [XOM-N]on Friday reported a profit of $45.2-billion (U.S.) for 2008, breaking its own record for a U.S. company, even as its fourth-quarter earnings fell 33 per cent from a year ago.

The previous record for annual profit was $40.6-billion, which the world's largest publicly traded oil company set in 2007.

The extraordinary full-year profit wasn't a surprise given crude's triple-digit price for much of 2008, peaking near an unheard of $150 a barrel in July. Since then, however, prices have fallen roughly 70 per cent amid a deepening global economic crisis.

In the fourth quarter alone crude tumbled 60 per cent, prompting spending and job cuts in an industry that was reporting robust, often record, profits as recently as last summer.

With piles of cash and diversified operations, the majors like Exxon Mobil have fared better than many smaller oil and gas companies, but Friday's results show no one is completely insulated from the ongoing malaise.

Irving, Texas-based Exxon said net income slid sharply to $7.8-billion, or $1.55 a share, in the October-December period. That compared with $11.7-billion, or $2.13 a share, in the same period a year ago, when Exxon set a U.S. record for quarterly profit. It has since topped that mark twice, first in last year's second quarter and then with earnings of $14.83-billion in the third quarter.

Revenue in the most-recent quarter fell 27 per cent to $84.7-billion.

Both the per-share and revenue results topped Wall Street forecasts. On average, analysts expected the company to earn $1.45 a share in the latest quarter on revenue of $69.1-billion, according to Thomson Reuters.

The nation's second largest oil company, Chevron Corp., reported profits of $4.9-billion for the fourth quarter, though revenues slid 26 per cent with oil prices in sharp decline.

It earned $2.44 per share in the three months ended Dec. 31. Like Exxon, Chevron easily beat expectations of analysts, who were looking for profits of $1.81 per share.

The industry went into retrenchment toward the end of the year with demand falling.

As expected, Exxon Mobil's bottom line took a beating from its exploration and production, or upstream, arm, where net income fell 31 per cent to $5.6-billion. The culprit: lower crude prices, which the company said decreased earnings by $3.2-billion in the fourth quarter alone.

The company, which produces about 3 per cent of the world's oil, said overall output fell 3 per cent in the most-recent period, a troubling trend in previous quarters. Exxon, which generates more than two-thirds of its earnings from oil and gas production, said production-sharing contracts and OPEC quotas contributed to its lower output.

Results were better at its refining and marketing unit, where earnings rose 6 per cent to $2.4-billion as higher margins overcame costs related to last summer's hurricanes and other factors.

The company's chemical division also took a hit, posting net income of $155-million versus $1.1-billion a year ago. Results were hurt by lower volumes and margins and hurricane-repair costs.

Exxon Mobil said it bought 119 million shares of its common stock in the quarter at a cost of $8.8-billion. Roughly $8-billion of that amount was dedicated to reducing the number of shares outstanding; the balance was used to offset shares issued as part of the company's benefit plans.

Exxon said it spent $26.1-billion on capital and exploration projects last year, up 25 per cent from 2007. Its earnings release provided no information about its planned spending for 2009.

For the full year, Exxon Mobil's massive profit amounted to $8.69 a share, versus $7.28 a share a year ago.

Shell makes first quarterly loss in a decade

• But company still makes biggest UK annual profit in history
• Earnings of £2.5m a hour may spark fresh calls for windfall tax

Shell has slumped to its first quarterly loss in 10 years on the back of plummeting oil prices, but the Anglo-Dutch oil group was still able to report the biggest annual profit in UK corporate history, of $31.4bn (£21.9bn) – the equivalent of £2.5m an hour – leading to renewed calls for a windfall tax.

The union Unite expressed anger that the petrol supplier was still raking in record profits while motorists and others suffered. "Shell is still feasting while the rest of us face famine," said joint general secretary Derek Simpson. "A compelling case still remains for a windfall tax on the greedy energy companies. Working families are struggling in the face of the recession; the redistribution of windfall profits would help support Britain through these difficult times."

Shell's profits were made when oil prices were soaring last year, reaching a record high of $147 a barrel last July – the price has since fallen to below $50.

The energy group, which is the second biggest publicly quoted oil company in the world, reported a net deficit of $2.8bn for the fourth quarter of 2008, compared with an $8.5bn profit during the same period 12 months earlier. "Combined cycle" earnings – the ones most watched by City analysts – fell 28% to $4.7bn in the three-month period, but Shell's full-year figure of $31.4bn was up 14% on the year before.

Jeroen van der Veer, Shell's chief executive, said industry conditions remained "challenging" and that the company would slow down some of its projects, such as the controversial tar sands operation in Canada. But he added that shareholders were still benefiting, with the dividend raised for both the last and the forthcoming quarter.

"Our strategy remains to pay competitive and progressive dividends, and to make significant investments in the company for future profitability. Industry conditions remain challenging and we are continuing the focus on capital and cost discipline," he said.

The tar sands business, which has attracted huge criticism from green groups because of its heavy carbon footprint, made a $30m quarterly loss. Van der Veer refused to admit that investing in tar sands was a mistake, saying it was a long-term business that would become profitable when global crude prices recovered.

Shell admits the tar sands business needs crude oil prices of $70-$80 a barrel to make money. James Marriott, a partner at environmental group Platform, said: "The tar sands are a disaster and should be abandoned. They are making a substantial financial loss for Shell while taking an even bigger toll on the environment."

Shell did not announce job cuts today, but the company did say it expected to spend slightly less on capital investment this year than last, as it balances its "commitments to projects under construction and growth with the more challenging economic landscape in 2009".

The City was split over the results and the share price dipped during the day but the "A" shares ended 25p up at £18.01. Andy Lynch, who runs the Schroders European Dynamic Growth Fund, welcomed the results, and Gordon Gray of broker Collins Stewart said the dividend increase showed Shell could ride out the downturn. "We are not that positive on the major oils as a group, but think Shell has the balance sheet to take it through this period of peak investment and weak pricing."

There had been speculation that the Anglo-Dutch group would reveal significant cutbacks in its 2009 exploration and production budget and could make job losses.

The results should keep Shell ahead of main rival BP, which will report next Tuesday and is expecting full-year profits of $26.5bn. BP is expected to produce a final-quarter profit of $2.98bn, which would be flat on the same period 12 months ago – a comparison flattered by the difficulties following the Texas City fire.

Imperial racks up record 2008 profits

Despite a lower fourth quarter, Imperial Oil Ltd. bucked an oilpatch trend by racking up record full-year profits in 2008 and cranking up its capital program, the company said Thursday.

"Our long-term approach has created a strong financial position that will continue to serve our shareholders well during times of economic uncertainty,"CEO Bruce March said in a statement.

Canada's largest integrated oil producer and refiner made $660 million, or 76 cents a share, in the final three months of the year, down about 25 per cent from $886 million, or 96 cents a share, in the fourth quarter of 2007.

Even after factoring lower oil prices in the second half, full-year profits climbed about 18 per cent to $3.9 billion, or $4.36 a share, from $3.2 billion or $3.41 a share a year earlier.

In addition, Imperial bucked another oilpatch trend by hiking its capital budget 60 per cent or nearly $800 million even as its peers slash billions in spending projects across Western Canada.

Much of the proposed increase is associated with the proposed Kearl oilsands project, where Imperial currently has 1,200 con-tractors and employees performing field work in anticipation of a decision to move ahead with the project later this year.

Where other big oilsands operators such as Suncor have reduced budgets and laid off contractors, work at the Kearl site in northeast Alberta continues uninterrupted, said Imperial spokesman Gordon Wong.

"We take a long-term view and disciplined approach to our business, that's one of our strengths," he said.

Imperial is one of a handful of companies that refines, produces and markets oil and gas products through its network of Esso service stations, which allows it to make money even when commodity prices fall.

The company's upstream production arm earned about $336 million in the quarter, down about 60 per cent from$739 million in the fourth quarter of 2007. Imperial blamed the drop on conventional oil prices that averaged $56.75 a barrel compared to $81.25 in the prior year period.

However, heavy oil prices held up better, fetching $48.95 compared to $56.60 in the fourth quarter of 2007.

Edward Jones analyst Lanny Pendill, who covers the Canadian oilpatch from St. Louis, credited better than expected heavy oil prices for the street-beating performance. Imperial doesn't disclose how much it receives for its Cold Lake production, other than to note"prices for Canadian heavy oil, including the company's heavy oil from Cold Lake, moved generally in line with that of the lighter crude oil."

Cold Lake production dipped slightly, to 146,000 barrels a day from 158,000 barrels a day a year earlier.

Pointing to more than $2.2 billion worth of share buybacks during the year, Pendill said Imperial has the balance sheet muscle to weather the downturn and maintain spending to bring its growth projects on-stream, which include the much-hyped Horn River unconventional natural gas shale play in northeast British Columbia.

"Imperial is one of those companies you can depend on not to do anything knee-jerk in response to short-term conditions. Everybody's expected a pretty dismal quarter from the oilpatch. They (competitors)just don't have the financial strength Imperial does."

Downstream profits, which include the company's refining assets, jumped to $257 million from $218 million a year ago reflecting a weaker Canadian dollar. Imperial said about $30 million of the difference is directly related to currency translation.

Andrew Potter, an analyst with UBS Securities in Calgary, said Imperial beat his quarterly estimates by some 13 cents a share, or nearly 20 per cent.

"Approximately 75 per cent of the variance is in the upstream due primarily to lower than forecast purchased product costs and lower taxes, with the remainder due to slightly better than expected downstream results," he noted.

Imperial's shares fell 63 cents on the Toronto Stock Exchange Thursday to close at $39.16.

© Copyright (c) The Calgary Herald

Petro-Canada posts loss, coy on Fort Hills

With oil prices still depressed as the global economy continues to weaken, PetroCan said it has lowered its production forecast for this year to between 345,000 and 385,000 barrels per day.Leah Hennel/CanWest News ServiceWith oil prices still depressed as the global economy continues to weaken, PetroCan said it has lowered its production forecast for this year to between 345,000 and 385,000 barrels per day.

CALGARY -- Petro-Canada, which on Thursday reported a fourth quarter loss and cut its production guidance for 2009, said it will wait until energy prices bounce back and financial markets strengthen before deciding whether to proceed with its Fort Hills oil sands project, which Total SA is trying to buy into.

Petro-Canada's Montreal coker and MacKay River oil sands expansion plans, two other unsanctioned projects, are also on hold.

"We intend to wait until we see a turn in commodity prices and the financial markets before moving ahead," Ron Brenneman, Petro-Canada's chief executive, said in a conference call. "In the mean time, we're stepping back and reworking the costs."

Petro-Canada lost $691-million, or $1.43 a share, in the fourth quarter, compared to a profit of $522-million, or $1.08 a share, in the same quarter in 2007. Operating earnings in the fourth quarter rang in at $518-million, or $1.07 a share, compared to $513-million, or $1.06 a share, in the fourth quarter of 2007.

The integrated company's oil sands division posted an operating loss of $8-million in the fourth quarter, compared to operating earnings of $73-million in the same quarter last year.

Petro-Canada expects to produce between 345,000 barrels of oil equivalent per day and 385,000 boe/d in 2009, down from its December prediction of between 360,000 boe/d and 395,000 boe/d.

"The production guidance range has been expanded to reflect market uncertainty in the current environment and the potential impact on near term production if low commodity prices persist or worsen and further reductions to capital expenditures are needed," Petro-Canada said in a statement.

The company also operates in Libya, and is therefore under production constraints imposed by the Organization of Petroleum Exporting Countries.

Harry Roberts, the company's chief financial officer, on the conference call said if Brent crude oil prices hover between US$40 and US$50, and if the Henry Hub natural gas trades around US$5 per Mmbtu, then "we can manage our business well within our financial means. If commodity prices are below this range for an extended period of time, we would look at further capital reductions."

Petro-Canada previously said it would make its final investment decision its Fort Hills oil sands project -- it has already iced plans to build an upgrader there -- in the middle of 2009. Asked whether this would change, Mr. Brenneman said: "We've got 11 months left in 2009. We haven't really said 'come hell or high water 2009.'"

Rather, when commodity prices, costs, and the financial markets are more favourable, and when factors such as the lease extension negotiations with the government are sorted out, then Petro-Canada will make its call, he said.

Total, the French energy giant, earlier this week made a hostile bid for UTS Corp., a minority shareholder in the undeveloped Fort Hills project. The international outfit made its first move into the oil sands in 1998, and has been making acquisitions there ever since. UTS owns 20% of the Fort Hills project, and Total has already broadcast its desire to own an even larger chunk of the development.

Teck Cominco Ltd. also owns 20% of the mining project, while Petro-Canada holds the remaining 60% and is the project's operator. Mr. Brenneman reiterated that Petro-Canada would welcome Total as a partner, and noted that the Canadian company is not interested in increasing or decreasing its stake in the multi-billion oil sands effort.