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MOBIL ANNOUNCES THIRD QUARTER 1998 OPERATING EARNINGS OF $497
MILLION
Third Quarter
________________________
1997 1998 Change
________________________
Operating Earnings ($millions) 907 497 (410)
per share ($) 1.14 0.62 (0.52)
assuming dilution ($) 1.11 0.61 (0.50)
Net Income ($millions) 892 509 (383)
per share ($) 1.12 0.64 (0.48)
assuming dilution ($) 1.09 0.63 (0.46)
Self-help programs mitigate the significant deterioration of industry
fundamentals in virtually all of Mobil's businesses.
- Efforts being accelerated to implement new self-help
programs to further reduce costs and improve
profitability.
Pace of overall investment and exploration spending will be slowing down,
with discretionary projects being deferred.
Downstream earnings hold up relatively well despite lower overall margins,
a fire at the Adelaide, Australia refinery and a planned turnaround at the
Joliet, Illinois refinery.
- U.S. gasoline sales up 6 percent, outpacing industry.
- Benefits from Europe and Asia Pacific initiatives
continue to grow.
- Lube earnings continue to improve.
Upstream earnings, in addition to being hurt by the decline in crude and
natural gas prices, were impacted by:
- Lower production, as higher volumes from Hibernia,
Tengiz, Equatorial Guinea and our new Oso NGL project in
Nigeria were more than offset by the impact of OPEC
quota reductions in Nigeria, storms in the U.S. Gulf of
Mexico, and scheduled maintenance at our European
operations.
- Higher exploration expense in line with 1998 planned
budget.
FAIRFAX, VA, October 28, 1998 -- Mobil Corporation today reported third
quarter 1998 estimated operating earnings of $497 million. This is a
decrease of $410 million, or 45 percent, from the record $907 million
earned in the same period last year. Operating earnings per common
share, assuming dilution, were $0.61, compared with $1.11 in the third
quarter of 1997.
Including special items, net income for the quarter was $509 million, or
$0.63 per common share, versus $892 million, or $1.09 per share, last year.
This year's third quarter net income included net special benefits of $12
million, as the gain on a European upstream asset sale was mostly
offset by charges related to a U.S. federal royalty settlement and
on-going implementation costs associated with the BP European downstream
alliance. Last year's third quarter net income included net special charges
of $15 million as gains on various asset sales were more than offset by
restructuring charges, net unfavorable litigation charges, and an accrual for
a one-time performance award to employees.
"This quarter saw virtually all of our businesses experience sharp declines
in industry fundamentals," said Mobil Chairman and CEO Lucio A. Noto.
"Despite our self-help efforts, earnings and cash generation are down
significantly this year. Mobil is a recognized industry leader in
implementing initiatives to reduce costs and improve profitability,
as evidenced by recent alliances and aggressive restructuring programs.
In response to continuing weak market conditions, the organization will
accelerate efforts to implement new self-help initiatives. In
addition, we have a strategy to maintain a prudent level of investment
spending, balancing near-term cash needs with spending for long-term growth.
We are carefully assessing our investment and exploration spending programs,
and moderating the pace of spending by deferring discretionary projects."
In commenting on third quarter earnings versus the comparable period last
year, Noto said, "Crude oil prices were down about $6 per barrel and natural
gas prices trended lower, particularly for LNG; U.S. downstream margins were
off and Asia Pacific downstream margins continued to be under pressure;
petrochemical margins also weakened considerably. Our self-help programs to
reduce costs, grow volumes, and improve performance contributed about $55
million, lessening the adverse impact of these weak fundamentals.
"In the Upstream, lower worldwide crude oil and natural gas prices impacted
earnings by about $250 million. Additionally, Mobil's third quarter
production was almost 2 percent below last year, as increased volumes from
Canada, Kazakhstan, Equatorial Guinea, and new volumes from the Nigerian
Oso NGL project were more than offset by cutbacks in OPEC quotas, which have
primarily impacted our Nigerian operations; scheduled maintenance in our
European operations; and the impact of storms on our U.S. Gulf of Mexico
production.
"Also, in line with our planned 1998 investment program, exploration expense
was higher in the third quarter, following our typical pattern of increased
exploration spending in the second half of the year. This year's third
quarter saw higher spending versus the comparable period last year due
to increased drilling and seismic activity in the U.S., as well as in our
New Ventures areas which will fuel our longer term growth.
"In the Downstream, despite difficult business conditions, there were several
bright spots, most of which were the result of our self-help programs.
In the U.S., trade sales growth continued to outpace industry in response to
our successful marketing programs, especially Speedpass(TM).
Also, refinery performance was strong despite a scheduled turnaround at
Joliet. These factors, coupled with contributions from other initiatives,
resulted in relatively strong third quarter earnings and contributed to
record U.S. downstream earnings over the first nine months of 1998.
"Benefits from the BP downstream alliance and stronger margins generated
improved European earnings versus last year. In Asia Pacific downstream,
our initiatives programs helped cushion the unfavorable earnings impact of
lower margins resulting from the economic downturn in the region. Worldwide
lube earnings were higher, benefiting from improved margins due to lower
feedstock costs and ongoing initiatives.
"In Chemical, earnings were down significantly reflecting lower polyethylene
and paraxylene margins."
Noto went on to say, "In the third quarter, we announced plans for an
Australian refining joint venture with Shell and a swap of U.S. upstream
properties with Arco. Also, we continued to divest assets which are
non-core and worth more to others. Asset sales have already generated
over $700 million in 1998, including $228 million from the mid-September
closing of the Paulsboro, New Jersey refinery sale; in addition,
$100 million was received for inventories and working capital on hand at
the time of closing."
Noto concluded, "This year's weak industry fundamentals are evidence of the
continuing volatility in industry conditions. Due to uncertainty with
respect to the outlook for prices and margins in the near term, Mobil will
sharpen its focus on self-help initiatives to improve its competitive
position. We remain confident in the long-term prospects for all of our
core businesses, especially those in Asia Pacific, where Mobil has a very
strong position."
The following comments address the operating performance of the major
business segments during the third quarter of 1998 as compared with the
same quarter in 1997 (refer to Table 2):
COMPARISON OF THIRD QUARTER 1998 WITH THIRD QUARTER 1997
Exploration & Producing operating earnings of $130 million were
$310 million lower than last year's $440 million.
In the United States, earnings of $38 million decreased $85 million due
primarily to lower crude oil and natural gas prices.
The unfavorable impacts of lower production of 16 TBDOE, approximately
half of which was the result of storms in the Gulf of Mexico, and higher
exploration expense, were offset by self-help initiatives.
International earnings of $92 million were $225 million lower, due mainly
to a significant decline in crude oil and natural gas prices and higher
exploration expense. Volumes were down slightly as increases in Canada,
Equatorial Guinea and Tengiz were more than offset by reductions due to
OPEC production constraints, mainly in Nigeria; scheduled maintenance
programs in Europe; natural field declines in Europe and Australia;
slightly lower Indonesian LNG sales; and non-core asset sales in Australia.
Marketing & Refining operating earnings of $376 million were $73 million
lower than in 1997.
Operating earnings in the United States were $179 million, $61 million
below last year. The unfavorable impact of lower industry margins,
a scheduled turnaround at the Joliet refinery and decreased refining
volumes reflecting the formation of the Chalmette joint venture late last year
were partially offset by strong sales performance.
International earnings of $197 million were $12 million lower than in 1997.
In Europe, earnings benefited from stronger integrated margins and
initiatives related to the Mobil-BP alliance. Earnings were lower in Asia-
Pacific as the deterioration in both refining and marketing margins as
well as unscheduled downtime at the Adelaide, Australia refinery were only
partially offset by performance initiatives in the region, including sales
volume growth. Other international downstream earnings were favorably
impacted by performance improvements, including higher product sales in
Africa and South America.
Chemical earnings of $41 million were $61 million lower than last year as a
result of significantly lower polyethylene and paraxylene margins.
Corporate and Financing expenses of $50 million were $34 million lower than
in the third quarter of 1997 primarily due to the timing of expenses
and other one-time items.
COMPARISON OF NINE MONTHS 1998 WITH NINE MONTHS 1997
Mobil's net income for the first nine months of 1998 was $1,856 million,
compared with $2,568 million for the same period in 1997. This year's net
income included net special charges of $11 million, with gains on asset
sales more than offset by the royalty settlement and implementation
costs for the Mobil-BP downstream European alliance. Nine months 1997 net
income included net special charges of $53 million.
Excluding special items, nine months 1998 operating earnings of $1,867
million were down $754 million, or 29 percent, from the comparable period
in 1997. The decline was primarily due to the significant drop in
worldwide average crude oil and natural gas prices, lower downstream margins
in Asia-Pacific, and lower petrochemical margins, partly offset by stronger
downstream margins in Europe and benefits from self-help initiatives.
Estimates of key financial and operating data are shown below and on the
attached tables.
Investment Spending for the third quarter of 1998 was $1,433 million,
$288 million higher than in the comparable period last year.
For the first nine months of 1998, investment spending was
$3,793 million, compared with $3,437 million for the same period last year.
Mobil's Return on Average Capital Employed for the twelve months ended
September 30, 1998, based on operating earnings, was 11.0 percent,
compared with 14.0 percent for calendar year 1997. On a reported net income
basis, returns were 10.6 percent and 13.4 percent for the same
periods.
Return on Average Shareholders' Equity for the twelve months ended September
30, 1998, based on operating earnings, was 13.9 percent, compared with 17.8
percent for calendar year 1997. On a net income basis, returns were 13.3
percent and 17.0 percent for the same periods.
Mobil's Debt-to-Capitalization Ratio was 29 percent at September 30, 1998.
Common Stock Dividends were $0.57 per share in the third quarter of 1998,
up by $0.04 per share from the third quarter of last year and by $0.12 per
share on a year-to-date basis.
Common Shares Outstanding as of September 30, 1998 decreased by 13 million
shares versus the same date last year due to net share repurchases and a
required change in accounting for shares held in Mobil's supplemental
retirement benefit plan trust. This change in accounting reduces the
recognition of income earned by the trust, and, for purposes of calculating
earnings per share, the number of shares outstanding; the impact on net
income per share will be negligible.