Exxon Mobil (NYSE:XOM) reported its typical spectacular earnings report for the fourth quarter of 2008, but gave few clues as to the evolution of its capital spending in 2009.
The company earned $7.8 billion in the fourth quarter of 2008, or $1.55 per share. While this number was down year over year and sequentially, it is clearly a profit that most companies can only dream of. The report also engendered some political heat about how much profit "big oil" is making during hard times, but it is refreshing to see an American company standing on its feet rather than begging Washington for a bailout. (Oil and gas investments can provide unmatched deduction potential for accredited investors, learn more in Drilling For Big Tax Breaks.)
IN PICTURES: Top 10 Solutions For A Big Tax Bill
Exxon spent $26.1 billion in capital spending in 2008. This was up strongly from the $20.8 billion in 2007. A closer examination shows that it spent 75% of this on the upstream to explore and develop oil and natural gas projects.
|Exxon Capital Spending (billions)|
|U.S.||$ 3.3||$ 2.2|
What was noticeably absent from the report was any talk of what the company hopes to spend in 2009. The company has always said that it plans to spend $125 billion over the next five years on capital spending - that's an average of $25 billion a year.
Rex Tillerson, the CEO of Exxon Mobil, told reporters in an American Petroleum Institute meeting in October 2008 that the drop in oil prices had not impacted the company's spending plan. "Nothing that we had in our plans has been affected by this change in prices. We were never planning on $100, $150 oil. The credit crisis also has little impact on Exxon Mobil because obviously we carry very low debt." Of course, oil prices in October were much higher than today, and Exxon Mobil is notable for its extreme capital discipline.
It was difficult to get any further info from the quarterly earnings call, because unlike its peers, the senior management of Exxon Mobil does not participate in the call. The company is planning an analyst meeting in March 2009, and may have further announcements at that time. (These events offer the average investor a chance to hear management respond to analysts' hard-hitting questions, see Conference Call Basics.)
Competitor Marathon Oil (NYSE:MRO) just announced it would cut capital spending in 2009 by 25%. The cuts would come mostly from a delay in developing some projects in the Canadian Oil Sands.
Like its fellow integrated oil peers, Exxon had difficulty growing its production in the fourth quarter of 2008. Its reported production was down 3% year over year, but after excluding OPEC quota cuts and lower entitlement volumes, production declined 1%. The full year was worse, with reported production down 6%, and 3% after the exclusions noted above.
Tony Hayward, the CEO of BP Inc. (NYSE:BP), recently suggested that one way out of the problem that the large integrated oil companies have with growing production and reserves is to merge with national oil companies (NOC). This would allow the companies to integrate their technological edges with large undeveloped reserves that the NOCs control.
Other integrated companies have had problems with their production growths. For example, Chevron (NYSE:CVX) reported during its recent conference call that it would have difficulty meeting its goal of a 3% compound annual growth rate in production from 2005-2010.
Exxon Mobil reported great earnings for the fourth quarter of 2008, but gave precious few clues as to whether it will adjust its mammoth capital spending plan of $125 billion over five years. It also was plagued with the problem of growing its production, so though this behemoth is still making money, it might be wise to investigate further before jumping on this stock.
Stock AnalysisA summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
Options & FuturesInvesting during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
Investing BasicsHeld onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
EconomicsWill remaining calm and staying long present significant risks to your investment health?
Stock AnalysisIs DKS a bargain here?
Investing NewsA third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
Stock AnalysisHome Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
Stock AnalysisYelp investors have had reason to be happy recently. Will the good spirits last?
Stock AnalysisWalmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
Stock AnalysisAs a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>