Don't cry for exxon's 18% drop in profit, Royal Dutch Shell's tanked 32% in the third quarter

Few companies can see their stock rally in the face of an 18% drop in profit.  Energy supergiant Exxon Mobil XOM +0.22% is one of those, topping estimates and earning nearly $8 billion this quarter as crude oil production and pricing improved, despite a dramatic fall in downstream profitability due to horrible refining margins.

  The company is also fully engaged in global expansion, drilling in Argentina’s rich shale plays, offshore in Brazil, in Siberian Russia, and ramping up onshore production in the U.S.  Over in Europe, Royal Dutch Shell was having a horrible quarter, its profit dropping 32% as its shares tanked.

It was a good third quarter for the biggest of Big Oil.  Exxon’s net income came in at $7.87 billion, its worst third quarter since 2010, yet the $1.79 earned per share came a couple of pennies above the consensus Wall Street estimate.

Revenue fell 2.4% to $112.4 billion, still topping expectations, as oil-equivalent production inched up 1.5% to 4.018 million barrels a day.  It was all about upstream for the largest U.S. energy company, where earnings rose $740 million to $6.7 billion, with growth both in the U.S. and internationally.  With everyone talking about the prospects of shale and natural gas, Exxon actually increased its production of crude oil, while natural gas declined slightly.  Still, as the price of oil and natural gas rose, so did Exxon’s profit.

Once again affirming the advantages of the integrated model, Exxon took a beating downstream, where earnings were a mere 22% of what they were a year ago, at $592 million.  Refining margins fell off a cliff domestically and across the globe, the company said, accounting for essentially the whole decline.  Exxon’s chemical unit, though, helped offset some of the weakness, as profit rose more than four-fold to $1.03 billion on higher commodity margins.

As planned, the company run by Rex Tillerson ramped up spending by 15% to $10.5 billion.  Exxon is set on taking advantage of any and all international opportunities out there, raising production in the Bakken, Permian, and Woodford basins in the U.S., drilling in Argentina’s Vaca Muerta (thought to be the world’s second largest shale field, where Chevron has signed a deal with local energy company YPF), in Brazil’s offshore blocks (where Petrobras is also operating), and all over Russia, particularly in Siberia.

Exxon bought back $3 billion worth of shares in the third quarter, and plans to spend a similar amount over the last three months of the year. Across the Atlantic, Europe’s largest energy company, Royal Dutch Shell, also posted earnings which came with a steep decline in profit.  Adjusted net income fell a dramatic 32% to $4.2 billion, as oil and gas production fell 2%.  The company suffered in both upstream and downstream operations, and faced difficulties with the security situation in onshore Nigeria.

With a global economy that is struggling to grow, and the U.S. recovering, global oil companies continue to churn out the profits.  Even in the face of a precipitous fall in refining margins, Exxon managed to deliver a solid quarter for investors, yet the stock has essentially remained flat this year.

http://www.forbes.com/sites/afontevecchia/2013/10/31/dont-cry-for-exxons-18-drop-in-profit-royal-dutch-shells-tanked-32-in-the-third-quarter/?ss=business%3Aenergy