Exxonmobil--Lane (slow)
Exxon
Interview: Oppenheimer & Co.---Gheit, Fadel---Analyst
>> exxonmobil shares among the stocks to raise 52 week highs yesterday. they are going to report fourth quarter and full year 2003 earnings tomorrow. before the market opens that will occur. lane bajardi has been following that and joins us with the details.
>> it will be interesting. it could mark one of the most profitable years ever. they will probably say it had earnings excluding special items of $16.5 billion. that mirrors a record high of $16.9 billion this 2000 and marks an end of two straight years of declining profits. net income may have climb the most any u.s. company ever made.
>> 2003 was big turning point. the businesses they were in all benefited from higher oil and gas price and better downstream refined margins.
>> natural gas prices increased 63% on average last year around crude oil averaged a record $31 a barrel. that boosted theirers enabling the c.. o. to buy back stock , raise the dividend and invest in new projects. analysts forecast crude i’ll will follow to $26.80 a year, a 20% drop from current. this is the reason why they forecast a 15% decline in earnings this year for exxon. investments in new projects should help them offset the drop in commodity prices
>> 2004 and 2005 they have a significant amount of new production coming on line and this is going to be the catalyst to get their production volumes going and obviously that will drive earnings.
>> analysts add that improving world economy and higher demand for nonmature markets such as china should support prices driving their refining margins higher around we will get those numbers tomorrow.
>> no question we will be all over it. just today exxonmobil was ordered to pay $4.5 billion in punitive damages and about $2.25 interest for the exxon valdiz oil spill. a lawyer for plaintiffs said the senior energy analyst at oppenheimer joins us to talk about that now and the earnings result tomorrow. let’s talk about the story, the valdiz number that is crossing the wire. we are talking about almost $7 billion. your reaction to this figure and the sum of money.
>> it is very large, but not much for exxon. i don’t believe they will pay. they will continue to take the case to a higher court and would settle.
>> so they just wait it out and never pay?
>> they have been doing that the last 15 years around you will have another two or three years. but they will not pay this number.
>> sour not concerned about this development?
>> not at all.
>> let’s talk persistent earnings tomorrow. my colleague lane just went through the numbers. you are a nickel less than the average, 59 cent per share. what is the problem there? what is going to happen?
>> i’m skittish on the refining and marketing profit. i think they are probably going to come below expectation. the crude oil prices were not mitigated by higher prices and that might bring it town.
>> you mentioned that you are going to ask them how are you going to book for your oil reserves and that of course -- or reserves in general, oil and gas―so oil and gas in the tank and the price canges every day.
>> correct. this is a logical question after dutch shell, what they did, the is downgraded the reserve or underestimated―they said that they overestimated the reserve by 3.9 billion and that is a logical question for analyst toss ask. exxon, how are you booking the reserve and you have the same problem.
>> what’s the answer you want to hear?
>> i would expect that they will say no, we don’t do that, we are a conservative company and do not do reserve revisions and increased estimates.
>> aren’t there accounting turnaround that apply across the board to oil companies and how they book their oil reserves?
>> unfortunately, this is like a highway with no speed limit and you drive as fast as you want. the s.e.c. has made it difficult for the oil companies to pick and choose. it is a a gray area. there are two companies on the same project, one may book reserve and one won’t. they should come down hard with specific rules.
>> whafflings the number you said that exxon keeps this reserves now?
>> 22 billion barrels. by far the largest of any oil company.
>> i think that we are uncovering this tonight. that is interesting. let’s now talk specifically about what we might hear from exxon tomorrow. it would be interesting to hear their answer to your question on how to account for reserves. but talk to me about geography if you can. where do you think exxon will do well and show improvement tomorrow?
>> their improvement will be outside of the u.s.. they are benefiting from higher oil and gas prices in the earth and every are. natural gas prices in the u.s. are highest ever and they are the second largest gas producer in the u.s. but most of the strength will be outside the u.s. they are 50% outside of the u.s.
>> thank you. analyst at oppenheimer. stay with us, because flat panel tv and digital cameras are expected to help japan’s electronics companies. we will look next.
