Exxon underestimated natural gas hit

DALLAS – Exxon Mobil Corp. underestimated the drag that low natural gas prices would have on its earnings, even as  it raked  in its second-highest profit total ever, CEO Rex Tillerson said Wednesday.

Speaking to shareholders at Exxon Mobil’s annual meeting, Tillerson faced questions on the company’s growth and repeated inquiries about climate change, a subject on which Tillerson spoke at length.

Tillerson said the company’s record spending on acquisitions and new developments was part of a growth strategy that has not yet delivered substantial returns — partly because of  low natural gas prices.

When Exxon Mobil purchased natural gas producer XTO Energy for $25 billion in 2010, “we expected natural gas prices had not yet bottomed out,” Tillerson said. “They bottomed out, but they stayed low much longer than we expected.”

A poor economic climate and extensive domestic supplies of natural gas led to the sustained low U.S. prices, he said.

“We weren’t a very good predictor on how quickly the U.S. economy was going to rebound and we missed slightly the industry’s pent up capacity,” Tillerson said.

“For the near term, I would say maybe we were off a year or two in an acquisition merger that was undertaken because of the 30-40 year view of the value,” he added. “I’m not too concerned about that.”

Still, Exxon Mobil’s 2012 profit  of $44.9 billion was the second-highest in its history, even as the company has invested huge amounts of money in projects that have not yet delivered returns.

Exxon Mobil, the world’s second-most valuable public company after Apple, plans to spend $38 billion a year on new projects. These include  expanding  Canadian oil sands efforts, starting up a massive liquefied gas effort in Papua New Guinea, and exploring in an area of Russia’s Arctic region larger than  Texas.

Shareholders at the meeting at the Morton H. Meyerson Symphony Center in downtown Dallas approved a pay increase for Tillerson, whose total compensation in 2012 was $40.3 million and whose cash salary will rise from $2.6 million to $2.7 million this year.

Shareholders also approved all other proposals supported by the company, including the election of former Johnson & Johnson CEO William Weldon as a member of Exxon Mobil’s board of directors.

By  a 4-1 margin, shareholders rejected  a proposal that the company  prohibit discrimination based on sexual orientation or gender identity.

They also opposed the adoption of greenhouse gas reduction targets, with  27 percent of shareholders backing  the proposal.

Shareholders pressed Tillerson on climate change, specifically on concerns that emissions have elevated the level of carbon in the atmosphere to 400 parts per million, a figure that some scientists have found troubling.

Though Tillerson said Exxon Mobil views climate change as “a serious risk,” he was not confident in some of the carbon projections and models for climate warming cited by environmental activists, or in their insistence on the need to drop atmospheric carbon below 350 parts per million.

“I cannot conclude that there’s something magical about 350 because that suggests that these models are very competent and our examination of the models is that they’re’ not that competent,” Tillerson said.

He said it wouldn’t be feasible to cut carbon levels to  350 parts per million.

“We do not see a viable pathway with any known technology today to achieve the 350 outcome that is not devastating to economies, societies and peoples’ health and wellbeing around the world,” Tillerson said. “You cannot get there. So the real question is, do you want to keep arguing about that and pursuing something that cannot be achieved at costs that will be detrimental? Or do you want to talk about what’s the path we should be on and how do we mitigate and prepare for the consequences as they present themselves?”

Some of Exxon Mobil’s spending on exploration and production will come in Iraq, the company’s largest source of projected hydrocarbon production growthl.

The company’s efforts in Iraq remain in doubt since Exxon Mobil has pursued resources in the semi-autonomous Kurdistan region against the wishes of Baghdad officials.  Iraqi leaders have said any oil company that makes a contract to operate in the Kurdistan region will not be allowed to operate in areas under federal control.

Tillerson told reporters that Exxon Mobil continues to pursue opportunities in all areas of Iraq, but Iraqi officials have not softened their positions in recent meetings with Tillerson.

“We believe there are solutions that will be in the best interest of all Iraqis and hope that we can be a positive participant in those, but otherwise nothing has really changed,” he said.

Asked about the company’s investment in the planned Golden Pass liquefied natural gas export terminal in Port Arthur, Tillerson said he hopes officials at the U.S. Department of Energy will consider approval of it earlier than others.

“It certainly would make sense to me that you would want to prioritize those permit applications around projects that have some likelihood they will materialize as opposed to again consuming a lot of regulatory process on a project that never goes anywhere,” Tillerson said.