July 31, 2008

Exxon Mobil Sets Record $11.68 Billion Profit In 2nd Quarter

Exxon Mobil, the world’s largest publicly traded oil company, reported on Thursday its best quarterly profit in history, but investors sold off shares in morning trading after expecting even higher earnings because of soaring oil and natural gas prices.

Record earnings for the world’s largest publicly traded oil company have become almost as predictable as the surge of gasoline prices at the pump in recent years, and for the second quarter income rose 14 percent, to $11.68 billion.

It is the highest quarterly profit ever for any American company, as Exxon made nearly $90,000 a minute.

Such profits have made Exxon Mobil a target of politicians in recent years, propelling calls for windfall profits taxes to finance research and development for renewable fuels to replace oil.

The principal reason for the company’s banquet of riches is rising fuel prices. Crude oil prices in the second quarter averaged more than $124 a barrel, 91 percent higher than the same quarter in 2007, according to Oppenheimer & Company. Natural gas prices averaged $10.80 per thousand cubic feet, up 43 percent from the quarter a year ago.

While high energy prices brought Exxon $10 billion in earnings from selling oil in the quarter, up about $4.1 billion or nearly 70 percent, not everything in its earnings report heartened investors. The company reported that its oil production decreased 8 percent from the second quarter of 2007, largely because of an expropriation of Exxon assets by the Venezuelan government and labor strife in Nigeria.

The company spent $7 billion, or nearly 40 percent more than the same quarter last year, to find and produce oil from new fields.

The company’s $1.6 billion in profits from refining was less than half than those in last year’s quarter because of lower worldwide refining margins. Earnings from its chemical business of $687 million were $326 million down from last year.

“Record crude oil and natural gas realizations were partly offset by lower refining and chemical margins, lower production volumes and higher operating costs,” Rex W. Tillerson, Exxon’s chairman, said in a statement.

Net income of $2.22 a share compared with $10.26 billion, or $1.83 a share, in the quarter a year ago. Revenue rose 40 percent, to $138.1 billion, from $98.4 billion in the quarter a year ago.

Excluding an after-tax charge of $290 million tied to an Exxon Valdez court settlement, earnings were $11.97 billion, or $2.27 a share.

Excluding one-time charges, analysts had expected Exxon Mobil to earn $2.52 a share on revenue of $144 billion, according to Thomson Financial.

With this quarter’s result, Exxon topped its own record of $11.66 billion in the fourth quarter of last year.

Wall Street did not respond positively to the results. Exxon shares sold off in mid-morning trading by more than 3 percent. Oil and natural gas prices continued their recent slide, as investors viewed the slowing economy increasing the probability that energy demand would slip over the next several months.

Earlier, in London, Royal Dutch Shell, Europe’s largest oil company, reported a 33 percent increase in second-quarter profit on Thursday, helped by a higher oil price even as production declined.

Like a smaller rival BP earlier this week, Shell profited from higher oil prices, , but a 13 percent drop from a record on July 11 raised some concern among investors about whether oil companies can keep up the pace of earnings growth. BP said earlier this week that higher oil prices have started to affect consumer demand for gasoline.

Shell’s profit rose to $11.56 billion from $8.67 billion in the period a year ago. BP reported a 28 percent increase in profit earlier this week and the Italian oil company Eni said on Thursday that profit in the second quarter rose 52 percent.

Oil companies are under pressure to find new reserves as their traditional fields age and are face increasing competition from state-run oil companies in Russia and the Middle East. Shell is also looking to make up for production lost in Nigeria, where militants attacked an offshore production vessel in June, and in Russia, where it had to sell its share in the Sakhalin Island oil and natural gas project to state-controlled energy company OAO Gazprom last year.

Oil and gas production fell to 3,126 thousand barrels of oil equivalent a day from 3,178 thousand barrels.

Shell’s chief executive Jeroen van der Veer pledged to continue investing to spur growth. “Shell is making substantial, targeted investments to grow the company for shareholders and help ensure that energy markets remain well supplied,” van der Veer said in a statement Thursday.

The company agreed two weeks ago to spend about $5.9 billion to buy Duvernay Oil Corporation of Canada to increase its gas production from tough rock formations and is in talks with Iraq about some service contracts.

Intellpuke: You can read this article by New York Times writer Clifford Krauss, reporting from Houston, Texas, and Julia Werdigier, reporting from London, England, in context here:
" target="_blank">www.nytimes.com/2008/08/01/business/01oil.html?_r=1&hp&oref=slogin

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