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Financial Times: Production declines at Exxon and Chevron

By Sheila McNulty in Houston and Ed Crooks in London
Published: February 2 2008 02:00 | Last updated: February 2 2008 02:00

ExxonMobil and Chevron, the two biggest US oil and gas companies, yesterday underlined the challenges they face in spite of high oil prices, reporting bumper profits but falling production and difficulties in finding new resources.

Exxon reported record ann-ual profits for a US company of $40.6bn, up 3 per cent, after oil prices rose to almost $100 a barrel in the fourth quarter. Chevron’s profits rose 9 per cent to $18.7bn.

Senator Charles Schumer, chairman of the joint economic committee, said: “Congratulations to ExxonMobil and Chevron – for reminding Americans why they cringe every time they pull into a gas station and for reminding Washington why it needs to act swiftly to break our dependence on foreign oil and roll back unnecessary tax incentives.”

Exxon’s oil and gas production for the year fell by 1 per cent to 4.18m barrels of oil equivalent a day. Chevron’s production fell 2 per cent at 2.61m boe/d.

Chevron also warned that it expected to report additions to its reserves to replace only 10-15 per cent of the oil and gas it produced last year.

Exxon said it would give details of reserves replacement in February.

The results followed Royal Dutch Shell, which a day earlier also reported record profits but falling production. Shell’s production fell 5 per cent in 2007, and is set to fall again in 2008 for a sixth successive year.

Investors have been attracted to big oil companies because of the boost rising oil prices have brought to profits, as well as their focus on share buy-backs and dividends. Exxon spent $28bn on share buy-backs last year – about 6 per cent of its market capitalisation and more than its capital spending of $20.9bn.

That capital spending was 5 per cent up on 2006, but energy analysts noted that that reflected soaring costs, caused by a shortage of skilled staff and equipment inflating prices.

Big oil companies are also being squeezed by declining production in traditional areas such as the North Sea, by resource-rich countries seeking to exert control over their reserves, and by national oil companies looking for overseas expansion.

More than 80 per cent of oil reserves are controlled by national oil companies.

“The national oil companies are the new rule-makers in this business,” said Robin West, chairman of PFC Energy, the consultancy.

Exxon’s fourth quarter net income was also a US record at $11.7bn, up 14 per cent from the previous year, on revenue of $116.6bn, which was up from $90bn. Chevron’s fourth quarter net income was $4.9bn, up from $3.8bn a year ago. Sales and other operating revenues were $60bn in the fourth quarter, up $14bn a year earlier.

Copyright The Financial Times Limited 2008

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