How much did ExxonMobil earn in 2005, and how did that compare with 2004?

Net income was $36.1 billion in 2005, up $10.8 billion or about 43% from $25.3 billion in 2004. Diluted earnings per share were $5.71, compared with $3.89 in 2004. Results included about $2.27 billion of net special items, including a $1.62 billion gain on the Dutch gas restructuring and a $460 million gain on the Sinopec share sale, offset by a $200 million Allapattah charge.

What drove the earnings increase?

The main driver was higher commodity realizations. Worldwide average crude and NGL prices rose to $48.23 per barrel from $34.76, and natural gas to $5.96 per thousand cubic feet from $4.48. Downstream earnings rose to $8.0 billion on stronger refining margins, and Chemical earnings reached $3.9 billion. Upstream production declined 4% year over year, partly due to hurricanes Katrina and Rita, divestments and entitlement effects, so price was the dominant factor.

How much is ExxonMobil returning to shareholders, and is the dividend sustainable?

In 2005 the company paid $7.2 billion in dividends, or $1.14 per share, up from $1.06 in 2004, and repurchased $18.2 billion of stock. The dividend payout was about 20% of earnings, and the quarterly dividend was raised to $0.32 per share for payment in March 2006. With debt at only $8.0 billion and cash of $28.7 billion, the company has substantial capacity to sustain distributions.

What are the major litigation risks?

The most significant matters are the Exxon Valdez punitive damages judgment ($4.5 billion plus interest, under appeal to the Ninth Circuit, with oral arguments held January 27, 2006 and a $5.4 billion letter of credit posted), and the Alabama royalty case, where a $3.5 billion punitive award is on appeal and $4.6 billion of cash and securities is pledged as collateral. Management believes the likelihood of both judgments being upheld is remote, but it cannot predict outcomes or estimate potential liabilities. The Allapattah class action has been settled for $1,075 million pre-tax, fully accrued, with final court approval expected in April 2006.

What is the outlook for production and capital spending?

Management expects overall production capacity to grow over 2006-2010 as major projects such as Thunder Horse, Sakhalin-1, Kashagan, Tengiz expansion and West African developments come online. Output from West Africa, the Caspian, the Middle East and Russia is expected to more than double over five years and to represent about 50% of total volumes by the end of the decade. Capital and exploration spending is expected to remain around $17.7 billion annually for the next several years. Absent new projects, existing field entitlement production is expected to decline about 6% per year, so execution on the project pipeline is critical.

XOM 10-K FY2005 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 28, 2006. Cited figures are marked; the original filing is the authoritative source.

ExxonMobil's 2005 Form 10-K reports record results: net income of $36.1 billion^a (up from $25.3 billion in 2004, a 43% increase), or $5.71 per diluted share, the highest annual profit in the company's history.

Total sales and other operating revenue reached $359.0 billion^b, and the return on average capital employed rose to 31.3% from 23.8%. Earnings were driven by higher crude oil and natural gas realizations (average crude price of $48.23/barrel versus $34.76 in 2004), strong downstream refining margins, and special items totaling about $2.27 billion, including a $1.62 billion gain on the Dutch gas restructuring and a $460 million gain on the Sinopec stake sale, partly offset by a $200 million Allapattah charge. Excluding special items, the increase was still substantial, though lower Upstream production (down about 4% oil-equivalent, including hurricane effects) tempered volume growth.

Cash generation and capital allocation were strong. Cash flow from operations was $48.1 billion^c, and including $6.0 billion of asset sales, cash flow from operations and asset sales totaled $54.2 billion. Capital and exploration spending was $17.7 billion, with management guiding to a similar level for the next several years.

ExxonMobil returned substantial cash to shareholders through $7.2 billion^d in dividends ($1.14 per share, a 20% payout) and $18.2 billion in share repurchases, which reduced shares outstanding by 4.2% during 2005. The balance sheet remains very conservative, with total debt of $8.0 billion, a debt-to-capital ratio of 6.5%, net cash of roughly $22 billion (net debt to capital of -22%), and AAA/Aaa credit ratings. Key risks include exposure to commodity price volatility, political and regulatory risk in a geographically diverse asset base, and ongoing litigation.

The most significant legal matters are the Exxon Valdez punitive damages case (a $4.5 billion judgment that management views as remote to uphold, with the company having posted a $5.4 billion letter of credit), and the Alabama royalty case ($3.5 billion punitive damages, also described as unlikely to be upheld, with $4.6 billion of cash and securities pledged as collateral). Management also highlighted that the Corporation's reserves base is 13.4 billion oil-equivalent barrels, and that production is expected to decline about 6% annually from existing fields absent new projects, making project execution central to future growth.

02—Key points

Key Highlights

Record net income of $36.1 billion in 2005, up 43% from $25.3 billion in 2004; diluted EPS of $5.71 versus $3.89
Total sales and other operating revenue of $359.0 billion, up about 23% from $291.3 billion in 2004 (includes $30.7 billion of excise taxes)
Return on average capital employed of 31.3%, up from 23.8% in 2004; Upstream ROCE of 45.7% and Downstream ROCE of 32.4%
Cash flow from operations of $48.1 billion; cash flow from operations and asset sales of $54.2 billion
Returned $25.2 billion to shareholders in 2005: $7.2 billion in dividends and $18.2 billion in share repurchases, reducing shares outstanding 4.2% to 6.13 billion
Net cash position with total debt of $8.0 billion against $28.7 billion of cash; debt-to-capital ratio of 6.5%; AAA/Aaa credit ratings maintained for 87 years
Proved reserves of 13.4 billion oil-equivalent barrels at year-end 2005, with production of about 4.07 million oil-equivalent barrels per day (down 4% year over year, including hurricane impacts)

03—Questions

Frequently Asked Questions

How much did ExxonMobil earn in 2005, and how did that compare with 2004?
Net income was $36.1 billion in 2005, up $10.8 billion or about 43% from $25.3 billion in 2004. Diluted earnings per share were $5.71, compared with $3.89 in 2004. Results included about $2.27 billion of net special items, including a $1.62 billion gain on the Dutch gas restructuring and a $460 million gain on the Sinopec share sale, offset by a $200 million Allapattah charge.
What drove the earnings increase?
The main driver was higher commodity realizations. Worldwide average crude and NGL prices rose to $48.23 per barrel from $34.76, and natural gas to $5.96 per thousand cubic feet from $4.48. Downstream earnings rose to $8.0 billion on stronger refining margins, and Chemical earnings reached $3.9 billion. Upstream production declined 4% year over year, partly due to hurricanes Katrina and Rita, divestments and entitlement effects, so price was the dominant factor.
How much is ExxonMobil returning to shareholders, and is the dividend sustainable?
In 2005 the company paid $7.2 billion in dividends, or $1.14 per share, up from $1.06 in 2004, and repurchased $18.2 billion of stock. The dividend payout was about 20% of earnings, and the quarterly dividend was raised to $0.32 per share for payment in March 2006. With debt at only $8.0 billion and cash of $28.7 billion, the company has substantial capacity to sustain distributions.
What are the major litigation risks?
The most significant matters are the Exxon Valdez punitive damages judgment ($4.5 billion plus interest, under appeal to the Ninth Circuit, with oral arguments held January 27, 2006 and a $5.4 billion letter of credit posted), and the Alabama royalty case, where a $3.5 billion punitive award is on appeal and $4.6 billion of cash and securities is pledged as collateral. Management believes the likelihood of both judgments being upheld is remote, but it cannot predict outcomes or estimate potential liabilities. The Allapattah class action has been settled for $1,075 million pre-tax, fully accrued, with final court approval expected in April 2006.
What is the outlook for production and capital spending?
Management expects overall production capacity to grow over 2006-2010 as major projects such as Thunder Horse, Sakhalin-1, Kashagan, Tengiz expansion and West African developments come online. Output from West Africa, the Caspian, the Middle East and Russia is expected to more than double over five years and to represent about 50% of total volumes by the end of the decade. Capital and exploration spending is expected to remain around $17.7 billion annually for the next several years. Absent new projects, existing field entitlement production is expected to decline about 6% per year, so execution on the project pipeline is critical.

04—Continue

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