UPDATE 3-Higher oil prices lift Exxon's profit as production sags

Thu Jul 31, 2014 12:44pm EDT

(Adds Breakingviews link, updates share price)
    By Ernest Scheyder
    July 31 (Reuters) - Exxon Mobil Corp, the world's
largest publicly traded oil company, reported a
stronger-than-expected quarterly profit on Thursday as higher
prices for its crude and natural gas offset a 6 percent drop in
production.
    Exxon has struggled in recent quarters to replenish its
reserves quickly, investing in massive new projects in Russia
and Papua New Guinea that take years to develop. 
    Meanwhile, many of its smaller, more-nimble peers have
aggressively developed shale formations around North America,
fueling massive production and exciting Wall Street.    
    "Declining production is a recurring theme for Exxon Mobil,"
said Edward Jones analyst Brian Youngberg. "The company remains
growth-challenged, and a lot of that is due to their large
size."
    Adding to the company's challenges are Western sanctions
against Russia, since Exxon is more involved in that country
than any other U.S. oil company.
    Lukoil, Russia's second-largest oil producer, said
on Wednesday that the sanctions would force it to slash capital
spending due to limited access to funds. 
    Exxon is partnering with Lukoil peer Rosneft to
develop a large oil field off the eastern Russian coast, and
analysts said Lukoil's announcement could be the harbinger of
funding challenges for the entire industry in Russia. 
    Exxon said net income rose to $8.78 billion, or $2.05 per
share, from $6.86 billion, or $1.55 per share, a year earlier.
    Analysts on average had expected earnings of $1.86 per
share, according to Thomson Reuters I/B/E/S.
   
    Part of the increase in profit was due to a gain from
Exxon's sale of its 60 percent stake in a Hong Kong utility and
power storage firm earlier this year. 
    Unlike others on Wall Street, Exxon does not typically offer
an "adjusted" earnings number. Youngberg said that if the
company had backed out the gain from the Hong Kong sale, its
profit would have missed expectations.
    Production fell 6 percent to 3.8 million barrels of oil
equivalent per day. While the drop is not a positive, investors
should not see it as the beginning of a negative trend, said
Oliver Pursche of Gary Goldberg Financial Services, who manages
Exxon shares for clients.
    "The bigger question beyond production is what their future
exploration looks like," he said. "And I would say there's
certainly opportunity there for them to make up for this dip in
production with fresh reserves."    
    The average price that Exxon receives for its crude oil
jumped 3 percent in the United States and 5 percent
internationally during the quarter.
    Exxon's shares fell 2.6 percent to $100.56 shortly after
midday.

 (Reporting by Ernest Scheyder; Editing by Franklin Paul,
Jeffrey Benkoe, Lisa Von Ahn and Richard Chang)
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