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The Major Oil Companies Are Still Awesome

Posted: Nov 10, 2009 12:35 PM by Eric Fox

Tickers in this Article: EOG, SWN, XOM, COP, CVX

The three U.S. based major integrated oil companies are still awesome cash producing machines, albeit not as awesome as they were at this time last year, as the fall in commodity prices and weak downstream results hurt each company's bottom line.

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Earnings Strong But Down
The big three oil players reported huge earnings in the third quarter of 2009. Unfortunately, these earnings were down year over year. Chevron (NYSE:CVX) earned $3.8 billion down from $7.9 billion in the same in 2008. Exxon Mobil (NYSE:XOM) came in at $4.7 billion down from the blowout number of $13.3 billion last year. Conoco Phillips (NYSE:COP) earned $1.5 billion, down from $5.1 billion.

Don't blame the oil companies; the simple fact is that oil and natural gas prices were down sharply year over year, and there was not much they could do to buffer the impact of the price drop. Exxon saw its realized price for each barrel of crude it sold in the U.S. fall to $62.13 in the third quarter of 2009, down from $104.89 last year.

Production
All three turned in production growth in the quarter, something that is getting harder and harder for the majors to accomplish. Chevron reported the highest production growth, 11% over the third quarter of 2008. The company cited several project start-ups, including major ones in Nigeria and Kazakhstan.

Exxon Mobil reported oil equivalent production growth of 5% above the same quarter in 2008. This excluded any impact from entitlement volumes, OPEC quota effects and divestments. For the first nine months of the year, production was up 1%.

Conoco Phillips increased its production from 1.748 to 1.791 million barrels oil equivalent (BOE) per day, on a year-over-year basis. This 2.5% increase excludes any contribution from its Lukoil stake.

While this was decent production growth from a major, it paled in comparison to some of the large independents. Southwestern Energy (NYSE:SWN) reported production growth of 38% in the third quarter. EOG Resources (NYSE:EOG) just revised its production growth target for 2010 to 13%.

Buybacks/Dividends
The majors continued to shrink its share count through stock repurchases, or returned extra cash to shareholders through higher dividends. Exxon Mobil had enough cash flow in the quarter to spend $4.2 billion on stock repurchases. Conoco Phillips raised its dividend by 6%, to $0.50 per quarter.

Downstream
The downstream was not a good place to be, particularly in the United States. Exxon Mobil earned only $325 million in the downstream, hurt by a loss of $203 million in its domestic operations.

Chevron also managed to eke out a small profit of $194 million in its downstream operations, with particular weakness in the U.S. Dave O'Reilly, the CEO of Chevron, blamed the poor results on "weak margins on the sale of gasoline and other refined products."

Conoco Phillips earned only $99 million in its downstream, far below the $849 million it earned in the same quarter of 2008.

The Bottom Line
Third-quarter results from the three U.S. based major oil companies were not without problems, but it's still good to be a major, as these companies produced billions in earnings. (To learn more, see our Oil And Gas Industry Primer.)

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By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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