Exxon Mobil Corp . posted an eye-popping profit of $41.1-billion (U.S.) last year, but had trouble maintaining production, despite a massive capital spending program.
The world's largest publicly traded oil company spent a record $36.8-billion on exploration and capital development last year, even as it allocated $29-billion to dividends and share buybacks to benefit shareholders directly.
But in the final quarter, the Irving, Tex.-based behemoth's production of oil and natural gas was down 9 per cent from the fourth quarter of 2010; for the year as a whole, it eked out a meagre 1-per-cent increase compared with its average daily production in 2010.
"Exxon missed our production estimate this quarter and, in fact, Exxon missed our production estimates for the past four consecutive quarters, Pavel Molchanov, a Houston-based analyst at Raymond James Financial Inc, said in an interview.
"As a general rule, in 2011, the major integrated oil companies have generally been missing on [analysts' targets for]production rather than not," he said.
The disappointing production numbers reflect part of the new norm for international oil companies, which – although they remain hugely profitable – must spend tens of billions of dollars just to maintain output, and face a challenging geopolitical climate across the world.
Part of the shortfall resulted from Exxon's production sharing agreements with host countries around the world, in which state-owned partners take a larger share of oil production as prices climb. Crude prices averaged a record high last year, eclipsing the levels of 2008 when oil peaked at $147 a barrel in July but collapsed in the latter half of the year.
The company earned $9.4-billion in the fourth quarter, up 2 per cent from the corresponding quarter of 2010.
For the full year, it posted earnings of $41.1-billion, up 35 per cent from 2010, thanks to higher prices for crude and for natural gas outside North America. The 2011 profit is the second-largest in corporate history, following Exxon's own $45.2-billion record in 2008.
Despite the company's near-record profits, investors were unimpressed as Exxon shares lost $1.75 – or 2 per cent – to $83.74 on the New York Stock Exchange on Tuesday.
"There's no strong evidence that the portfolio is delivering the capability to grow and, frankly, based on our preliminary take, it looks like costs are going the wrong way," Mark Gilman, an analyst at Benchmark Co., told Reuters news agency.
Super-majors such as Exxon are finding it increasingly difficult to generate highly profitable production growth without resorting to acquisitions. They face operating restrictions in countries such as Iran, Russia and Venezuela, even as they face increasingly tough competition from Chinese and other state-owned companies in countries that welcome foreign investment.
As result, international oil companies that were divesting assets in North America less than a decade ago are now aggressively reinvesting, whether in Canada's oil sands, where Exxon is embarking on the second phase of its Kearl mining project; in the deep water of the Gulf of Mexico, or shale gas and tight oil plays, such North Dakota's Bakken or Oklahoma's Woodford Ardmore, where Exxon has active drilling programs.
Like many oil companies, Exxon is shifting its drilling fleet away from fields that produce dry natural gas to liquids-rich plays that yield oil, or butane, propane and ethane. But Exxon vice-president David Rosenthal said the company has not curtailed its North American gas production in response to depressed prices, as some of its competitors have done.