Figures released today show that Exxon Mobil and Royal Dutch Shell have experienced a significant drop in profits for the second quarter in a row. After the news hit, both companies released statements that outline how are were hoping to change their approach to their business strategies. Exxon has fallen 16 percent in the last quarter as oil and gas production slipped 1.8 percent compared to last year. While the company’s net income was posted at $8.35 billion, it was down from the previous year which came in at $9.95 billion. Exxon’s total earnings for last year were $32.6 billion, a fall of 27 percent from the previous year. On top of this Exxon spent $42.5 billion in 2013 on overseas expansion and new projects.
Shell has also stated that the last quarter was its worst in five years. The company netted $2.9 billion which was a 48 percent fall from the previous year. Shell came in at $19.5 billion for the year, down from 2012 when it came in at around $25 billion.
In each case this reflects a significant slip in share prices.
The drop in oil prices comes as a result of a narrowing price difference between oil types. When the gulf between Texas intermediate crude oil and Louisiana light oil is wide, oil companies reap the profits, but as these types are experiencing closer prices, companies like Exxon lose out. Costly product disruptions, such as that which Shell has experienced in Nigeria, can also result in profit loss. This is in addition to new oil sources flooding the market and thus dropping the price.
To sidestep angry shareholders after the recent drop in profit, Exxon Mobil and Shell are both seeking to change their business approach. Exxon is promising to increase exploration for new oil reserves. This would include expansion in existing shale formations in the U.S. including adding more rigs in Texas, Oklahoma and North Dakota. They are developing other overseas ventures with rigs in Canada, Argentina and Upper Zakum off the Abu Dhabi islands. The company is also hoping to boost natural gas profits in its Papua New Guinea and Alaska operations.
Shell is hoping to cut down on its capital investments as a way to boost their financials. This includes shutting down production of a natural gas to diesel factory in Louisiana. They have also halted plans to drill in the Alaskan arctic to conserve capital.
In comparison, rival oil company Occidental Petroleum has increased profits during the last quarter. Profits of $1.6 billion may look small in comparison to the larger oil companies, but these figures are up from $336 million for the same period last year. The company announced in 2013 that it had plans to sell off assets overseas in North Africa and the Middle East and concentrate on production closer to home. Occidental also reported plans to lower drilling expenses and operating costs in a bid to increase efficiency.
Exxon Mobil and Shell may want to consider following suit in order to recover after the release of their drop in profits this quarter. The companies’ individual approaches may help to undermine the latest figures and get them back on track. For now it will be a sink or swim venture to see who comes out on top.
By Sara Watson