Dave Gonigam

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Missing the real story

Different media outlets have different takes on Exxon Mobil's second-quarter numbers.  And almost all of them are missing the real story.

CNNMoney's lede is typical of most:

Exxon Mobil once again reported the largest quarterly profit in U.S. history Thursday, posting net income of $11.68 billion on revenue of $138 billion in the second quarter.

And just to reinforce the perceived obscenity, the second line is:

That profit works out to $1,485.55 a second.

Never mind that XOM's margins are probably lower than that of Time Warner.  But that's a discussion for another day. 

Marketwatch takes a somewhat different tack, noting XOM fell short of expecations:

Exxon Mobil Corp. said higher oil prices drove profits to a new record of $12 billion, but the world's largest oil corporation fell short of Wall Street's earnings target for the second quarter in a row on higher costs, lower refining and chemical margins and a 3% dip in adjusted production.

But Bloomberg stands nearly alone in getting to the crux of the matter:

Exxon Mobil Corp., the world's biggest oil company, posted a smaller increase in second-quarter profit than analysts estimated after production dropped the most in at least a decade.

Falling production: That's the real story.  Down 7.8%, thanks to Hugo Chavez's oil field grab in Venezuela, strikes in Nigeria and contracts with foreign governments that give them a bigger cut of output as oil prices rise.  “If oil prices are going up $20 and $30 a barrel a quarter like they have been, it hides a lot of flaws,'' said Brian Gibbons, an analyst at New York-based CreditSights Inc. “The question on everyone's mind is, how do these guys expect to grow production given the restrictions on access to reserves?''

Everyone except the reporters writing most of the stories about XOM's Q2 numbers.  Ask most of them (to say nothing of Congresscritters) how much of world oil reserves are under the control of Exxon Mobil, Chevron, BP, and Royal Dutch Shell, and I dread to think what numbers they'd probably come up with — when in point of fact, it's governments and their national oil companies that control more than 75% of reserves.  Big Oil is, in fact, a bit player.

Bottom line: Only the record profits will get any play today.  Falling production?  Shrinking margins?  Those are off limits for discussion.   As are other issues pertaining to world oil supply that are even more pressing.

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