Production Declining, Exxon-Mobil Spends Billions on Buybacks

The Company: Exxon-Mobil, the world's largest oil and gas company
The Filing: Form 8-K filing with the SEC on July 31
The Finding: ExxonMobil announced record net income of $11.7 billion in the second quarter, up 14 percent from last year, due to record-high oil prices. Management said it is investing billions to bring new supplies to the market, yet aggregate oil and gas production slipped 7.8 percent.

The Upshot: Production declines reflected -- in large part -- state expropriation of company assets in Venezuela, labor strike and civil unrest in Nigeria, lower entitlement contracts (which require the company to concede more production to certain foreign partners in step with higher crude prices), and mature-field output declines.

Upstream capital expenditures to develop new fields increased 36 percent to nearly $5.2 billion in the second quarter, with approximately 86 percent spent outside of the United States.

The startup in the second quarter of the East Area Natural Gas Liquids II project and the Deepwater Gunashli platform in the Azerbaijan section of the Caspian Sea are expected to produce 50,000 and 300,000 barrels of natural gas liquids per day, respectively.

In the United States, production volume in the quarter totaled 368 thousands of barrels daily, down 6.4 percent from last year. Where some of its smaller competitors are investing billions in developing local shale plays, like XTO Energy and EOG Resources, Exxon is buying back its own stock, having spent $8.8 billion on repurchases during the second quarter -- close to the approximate market capitalization of Continental Resources, the second-largest leaseholder in the Bakken Shale play stretching across North Dakota and Montana.

The Question: Given growing global restrictions on access to productive reserves, is a stock buyback the most prudent expenditure?

David Phillips

David Phillips has more than 25 years' experience on Wall Street, first as a financial consultant and then as an equity analyst for several investment banking firms. He sifts through SEC filings for his blog The 10Q Detective, looking for financial statement soft spots, such as depreciation policies, warranty reserves and restructuring charges. He has been widely quoted in outlets such as BusinessWeek, The International Herald Tribune, Investor's Business Daily, Kiplinger's Personal Finance, and The Wall Street Journal.

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