Today’s earnings report from Exxon Mobil Corporation (XOM) did not meet consensus estimates. Compared with last year, the company’s earnings were off 68%.
The third quarter of 2008 was the point when crude prices reached their peak. Average realized prices for nearly every oil producer were above $100/barrel, with spot prices above $140/barrel. This year’s third quarter saw average realized prices cut nearly in half, although they were better than second quarter prices.
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BP (BP), which reported earlier this week, noted third quarter prices of $62.77/barrel this year, compared with $111.47 last year. China’s largest oil company, Petrochina (PTR), which also reported earnings this week, noted 2009 third quarter average prices of $49.06/barrel, compared with last year’s price of $97.24.
Another big Chinese oil company, CNOOC Ltd. (CEO) also reported earnings this morning, and came in 23% lower than the same quarter last year. CNOOC’s average realized price for the quarter was $67.83/barrel, down from nearly $93/barrel last year.
But where Exxon and BP differ from their Chinese counterparts is in capital spending. The fully public companies are reining in spending, while the Chinese are increasing their expenditures.
In the first half of 2008, every major oil company was getting blasted for not spending enough on exploration for new sources of crude. Companies invested heavily, and those investments have begun to pay off, but now demand has fallen. E&P spending is down this year and is likely to fall again next year for Exxon and BP.
It’s a different story for CNOOC and Petrochina. CNOOC increased capital spending year-over-year in the third quarter by more than 10%, to about $1.65 billion. Exxon spent $6.5 billion in the quarter, a 5% decrease from last year. BP spent $3.5 billion this year, compared with $7.43 billion last year.
Petrochina’s report has no specific information on capex spending, but total spending appears to have declined by between 10% and 15%. That makes some sense because Petrochina depends more heavily on refining for its profits. Refining profits have always been hard to come by in China where the government sets the price refiners pay for crude and the price at which refiners can sell their product.
Of course the Chinese government also covers the losses. Neither the US nor the UK makes that same promise to Exxon or BP, but is either company in the same category as a big investment bank: too big to fail?
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