Energy firms, long accustomed to making hefty profits, were stung last quarter by weak oil and natural gas prices and lowered demand.
ExxonMobil Corp. and Royal Dutch Shell PLC, two of the world’s largest public oil companies, reported their worst quarterly earnings in more than five years last quarter.
The Irving, Texas-based ExxonMobil reported earnings of $4.7 billion last quarter, a staggering amount but still 65 percent off last year’s figures. After posting a U.S. record $45.2 billion in profits last year, the latest results were well below what analysts had expected.
A telltale sign of recovery for energy companies is the price and demand of oil. Last quarter, oil prices in the United States hovered under $70 per barrel, whereas in 2008 it exceeded $100 per barrel. Oil demand has weakened due to the economic recession as consumers and businesses cut back on transportation, as well as new initiatives in renewable energy usage.
Despite the downturn, ExxonMobil Chairman Rex Tillerson said that the company will continue its “robust investment program” in oil exploration.
ExxonMobil recently announced a partnership with biotech company Synthetic Genomics Inc. to research and develop biofuels from photosynthetic algae. ExxonMobil plans to invest $600 million in the technology if it proves feasible, the company said.
British oil giant Royal Dutch Shell also announced on Thursday a steep drop in profits. During the third quarter, the company made $2.6 billion, a 68 percent decline from the same period last year.
The company cited a weak economy and lower energy prices for the drop. “Our third quarter results were affected by the weak global economy,” CEO Peter Voser said in a statement. “Our strategy remains on track, although the near-term industry outlook remains challenging.”
Demand to Pick Up?
But analysts see the current drop in oil demand as merely a blip in the radar. Last week, Chevron Corp. executive David O’Reilly declared that as the global economy improves, there will be a shortage of oil over the next decade and oil is primed to exceed $100 per barrel again.
And until sustainable energy sources become less expensive, analysts say that the world needs oil giants to continue to produce, explore, and refine petroleum at elevated levels to offset lowered production in some oil exporting nations.
But new oil discoveries are “going to take a long time—five, six, eight years down the road to build these pipes and put in the infrastructure they need,” industry expert Matt Badiali said in an interview with The Energy Report.
“It takes a long time to go from discovery to 100,000 barrels a day, 300,000 barrels a day,” he said.
The issue is that as the world’s reserves dry up, new oil fields take a lot of manpower and resources to drill, maintain, and clean up.