May 24, 2024

Refining Helps 4th-Quarter Profit at Exxon Mobil

The oil giant reported net income for the quarter of $9.95 billion, up 6 percent from the year before. The company’s domestic refining division is benefiting from the steep increase in domestic oil production, which has brought down the price of crude that refiners process, particularly in the midsection of the country.

But Exxon Mobil also reported a 5 percent decline in oil and gas production, with earnings from output in its upstream business falling 12 percent in the quarter. The poor results in the production business underscored the continuing difficulty of many major oil companies in replacing aging oil fields with new reserves. Exxon Mobil and other companies also are straining to make profits in domestic shale gas fields because a glut in natural gas supplies has forced the price of gas down by roughly 60 percent over the last five years.

“The company continues to be growth-challenged,” said Brian Youngberg, senior energy analyst at Edward Jones. “They really didn’t have any big projects come on line in 2012, and 2013 will be a challenge also.” He said 2014 looked better, as the Kearl project in the Canadian oil sands was expected to be fully operational by then.

Chevron, the No. 2 American oil company, also reported strong refining results, which pushed up its fourth-quarter earnings by 41 percent to a record $7.25 billion. But the company reported that crude oil output had declined by 1.2 percent.

Chevron has suffered oil production declines over the last two years, although analysts say that the development of offshore exploration projects in the Gulf of Mexico, domestic oil shale development and longer-term liquefied natural gas transport projects should enable the company to expand production by 2014.

David Lawrence, Exxon’s vice president for investor relations, told analysts that the company was developing production projects in Romania, Tanzania, Siberia, Argentina and Colombia that augur well for the future. “It’s a nice pipeline,” he said. “It’s probably as balanced a portfolio that we’ve had in a long time.”

In the last quarter, the Texas-based company tried to increase its reserves and production by purchasing 196,000 acres in North Dakota and Montana from Denbury Resources for $1.6 billion to add to the Bakken shale oil field.

Exxon Mobil bought XTO Energy four years ago for $41 billion, making it the country’s biggest natural gas producer. Many analysts have questioned the purchase since it was made when gas prices were high. But the deal gave the company experienced personnel in exploring and drilling in shale formations. The company hopes that the XTO deal will pay off once gas prices recover, and shale in Russia, Colombia and Argentina get off the ground.

Exxon Mobil’s refining and marketing earnings climbed to $1.77 billion, from $425 million in the quarter. Earnings from its chemicals business increased to $958 million, from $543 million.

But the big winners in the oil patch this earnings season have been the refining companies. Valero Energy’s fourth-quarter earnings of $1.01 billion represented a seven-year record and compared to only $45 million for the same period in 2011. Marathon Petroleum reported a profit of $755 million, compared to a loss of $75 million the year before. Both companies are replacing expensive foreign crude with far cheaper domestic crudes for refining.

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DealBook: BP Offers to Acquire Larger Stake in Rosneft

A Rosneft oil rig in Siberia in 2007.Sergey Ponomarev/Associated PressA Rosneft oil rig in Siberia in 2007.

MOSCOW – BP has offered to acquire a bigger stake in the Russian state oil company Rosneft if it can sell its interests in a private joint venture here, the president of Rosneft said on Friday.

Such a move would make BP the largest single outside investor in the Russia’s state oil company.

The deal also holds the promise of reviving an ill-fated offshore exploration deal in the Russian Arctic that fell apart last year amid lawsuits, and more broadly tie BP’s fate to Russia for years to come.

BP’s chief executive, Robert W. Dudley, made the offer on Tuesday in a meeting with President Vladimir V. Putin at a Russian government retreat in the Black Sea resort town of Sochi, Rosneft’s president, Igor I. Sechin, said Friday.

BP and Rosneft executives met with Mr. Putin as BP continued trying to extricate itself from a nine-year-old partnership called TNK-BP, but none of the parties provided many details about the discussions until now.

Clockwise from left, Russia's president, Vladimir V. Putin, on Tuesday with an interpreter; Carl-Henric Svanberg, chairman of BP; Robert Dudley, BP's chief; and Igor Sechin, Rosneft's chief.RIA Novosti/ReutersClockwise from left, Russia’s president, Vladimir V. Putin, on Tuesday with an interpreter; Carl-Henric Svanberg, chairman of BP; Robert Dudley, BP’s chief; and Igor Sechin, Rosneft’s chief.

Such a deal that will be extraordinarily important for BP, which pumps about a quarter of its global oil output from Russia. Rosneft, for its part, had already intended to sell shares to reduce the government’s holding in the company.

“This proposal seems to be very interesting,” Mr. Sechin said in remarks carried by Russian news services and confirmed by Rosneft’s media office.

The precise structure of the deal is still unclear, Mr. Sechin said. BP is also negotiating to sell its stake in the venture to its oligarch partners, and must continue these talks until mid-October under the terms of its shareholder agreement in TNK-BP.

Mr. Sechin confirmed that Rosneft was in talks with banks to raise $10 billion to $15 billion for a deal. The rest is likely to come as shares in Rosneft.

“BP aims to be an investor in Russia for many decades to come. BP is considering further investment in Russia regardless of who we sell our stake to,” the company said in a statement. “Therefore if we are successful in selling our stake in TNK-BP then we would be interested in investing some of the proceeds in buying shares in Rosneft.”

The deal could well become a payday for BP shareholders, who are growing impatient with Mr. Dudley’s leadership in turning the company around after the Gulf of Mexico spill.

BP would be paid in cash and shares in Rosneft. BP’s statement suggested a portion of the cash could be reinvested to keep a foothold in Russia, possibly with a revival of the Arctic deal, said Ildar Davletshin, an oil and gas analyst at Renaissance. With the rest, BP could buy additional Rosneft shares and pay a special dividend to shareholders, Mr. Davletshin said.

Shareholders “need to see a sweetener,” he said.

When BP created the TNK-BP joint venture with the oligarch partners in 2003, the deal suggested a coming of age of Russian capitalism. It was the largest outside investment in Russia at the time.

But soon after entering the deal, the oil industry landscape shifted under BP’s feet. The following year, Mr. Putin imprisoned a wealthy, post-Soviet oil tycoon, Mikhail B. Khodorkovsky, and effectively nationalized Mr. Khodorkovsky’s assets to form the core of the state company, Rosneft.

Shortly after that, BP had bought a 1.3 percent stake in Rosneft worth about $1 billion during the Russian oil company’s I.P.O. in 2006.

For BP, the TNK-BP venture had signaled the future of Russian oil development would center on a state company – much as it does in Saudi Arabia and other major oil-exporting nations.

BP has since struggled to extricate itself from the private sector deal or create separate joint ventures with Russian state energy companies, either Rosneft or Gazprom.

Two previous attempts by BP to shift its footing in Russia — a partnership in 2007 with Gazprom and an Arctic exploration deal in 2011 with Rosneft — failed because the oligarch partners, still influential in the Russian government, succeeded in foiling BP’s plans.

In both cases, as now, Mr. Dudley, a lifelong oilman from Mississippi, had tried to form a counterintuitive alliance with hardline Russian government officials like Mr. Sechin, a proponent of resource nationalism, and against the private-sector partners.

The agreement Mr. Sechin outlined in comments at an economic forum in Sochi would accomplish much of what BP has been seeking for its Russian business.

Thane Gustafson, an expert on Russian oil at consultants IHS Cera said that Rosneft could use the technical and managerial help that BP could provide for its mission of developing the Arctic offshore and other frontier areas.

But he cautioned that Rosneft was already “a company with a great many obligations and commitments.”

BP, he said, would be joining three other strategic partners, ExxonMobil, Norway’ s Statoil and Italy’s ENI.

Stanley Reed contributed reporting from London.

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