Exxon & Big Oil Actually Like Low Oil Prices (XOM, RDS.A, MUR)

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It may be a stretch to say that oil companies actually like lower oil prices, but these oil companies keep posting great earnings even though oil has fallen from north of $140/barrel in June to the $60’s in October.  Exxon Mobil (NYSE:XOM) announced record earnings excluding special items for the third quarter of $13.38 billion (EPS of $2.59). Its chairman credited the company’s "disciplined business approach" for the record quarter. 

Upstream earnings were up more than 33%, mostly attributable to higherrealized prices for crude oil and refined products. Crude oilproduction was off by 8% compared with the same period a year ago, andnatural gas production was also slightly lower. Downstream earnings(refining and marketing) were also up by about a third, due to highermargins.

No surprises at Exxon. The company thrived on record high prices forcrude and refined products. If prices remain as low as they are now,the fourth quarter could be significantly different.

Royal Dutch Shell (NYSE:RDS.A/RDS.B) also reported third quarterearnings before the bell this morning. The company announced EPS of$1.77 on revenues of $131.567 billion. EPS improved by more than 30%,while revenues were essentially flat and crude production was down.Here again, record high prices for crude tell the tale.

After the market closed yesterday, Murphy Oil (NYSE:MUR) announced itsthird quarter results, and, while not record-shattering, the company’sperformance was very good. Murphy turned in fully-diluted EPS of $3.04,up about two-thirds from a year ago. Revenues hit $8.19 billion, upmore than 40% from a year ago. The company attributed the increases tohigher margins in both upstream and downstream segments. In otherwords, high prices yield high revenues and earnings. How many high-paidexecutives did it take for Exxon, Shell, and Murphy to figure that out?

One guy who figured this out for himself is T. Boone Pickens. Duringthe bull market on oil, he was riding high. He’s been out of the oilmarket for "several weeks" as his hedge funds have reportedly lostabout $2 billion.

Right before the opening bell this morning, Exxon is trading up nearly 1%, Shell isdown about 1.5%, and Murphy is up about 2.5%  If oil stays in a trading range it will at least get much easier for these companies to budget and plan..

Paul Ausick
October 30, 2008