Buyback gusher

Exxon Mobil running hard just to stand still

Exxon Mobil is having to run hard just to stand still. The world's biggest company is pumping only a trickle more oil than 12 years ago - and maintaining even that is getting more expensive. Only buybacks are making growth in earnings per share look decent.

Keeping up with its own size is a challenge for a company as large as Exxon. It extracts more energy than the crude output of Canada, Brazil or Iran, according to BP figures. So a 3.5 per cent production decline in the first quarter from a year earlier isn't surprising in isolation. The trouble is, the problem is a long-term one. Exxon is pumping just 3 per cent more oil and gas than in 2001. That's despite the $31 billion purchase of explorer XTO Energy in 2010, which boosted output by more than a tenth at a stroke.

Even holding production roughly steady is increasingly costly. Exxon's capital expenditure for the first quarter was a third higher than in the first three months of last year after rising 8 percent for 2012 overall.

Exxon is not the only big oil company battling such pressures. Capital outlays at Chevron, due to report on Friday, are rising even faster - up 24 per cent last year. Occidental Petroleum, which like Exxon released first-quarter results on Thursday, is also struggling with its costs.

At least Chevron reckons its capex splurge will boost output by a quarter by 2017. That's twice the pace of growth Exxon is forecasting. Occidental is also increasing production faster. Thanks partly to the unfortunately timed XTO deal, Exxon is also handicapped by a greater reliance on ultra-cheap natural gas, which accounts for half its output against only 30 per cent at Chevron.

Exxon has papered over the cracks with share repurchases. Reducing the share count by 5 per cent in the past year turned a mere 1 percent year-on-year increase in quarterly earnings into a 6 percent jump in earnings per share. That's testimony to Exxon's cash-generating efficiency. But the company's high valuation compared with peers - an enterprise value-to-2013 EBITDA multiple of 4.9 times, using Thomson Reuters data, against an average of 4.3 times for Chevron, ConocoPhillips and Oxy - is now hard to justify. The Exxon premium could be on the way out.