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Higher Oil Prices Help Exxon Again Set Record Profit

By Steven Mufson
Washington Post Staff Writer
Friday, February 2, 2007

It was a hard act to follow, but Exxon Mobil has managed quite an encore.

After ringing up the biggest annual profit figure in U.S. corporate history in 2005, Exxon Mobil yesterday announced that it topped that number in 2006. Riding the wave of high crude oil and gasoline prices, the company reported a profit of $39.5 billion, up 9 percent from the year before.

Its revenue of $377.6 billion exceeded the gross domestic product of all but 25 countries.

Not everyone is applauding the performance. Rep. Edward J. Markey (D-Mass.) called the profit "outlandish" and blasted the Bush administration for "energy bills full of goodies."

Liberal economist Dean Baker, co-director of the Center for Economic and Policy Research, called the profit a "huge bonanza" and said Congress should adopt a windfall profits tax. "They're benefiting from the bad luck that's hit the rest of us," he said.

Exxon Mobil's vice president for public and governmental affairs, Kenneth P. Cohen, made a spirited defense of the company's record in a conference call with reporters. "Yes, the earnings are certainly large," Cohen said. "But so are our capital expenditures, and so are the challenges for the industry to find and produce the energy . . . we need to keep the economy humming."

He added that the same forces that drove up oil prices could push them down in other years. "The industry is huge and the company is huge. But it's cyclical," he said.

Exxon Mobil of Irving, Tex., is the largest oil company in the world that is not owned by a foreign government. It is in a capital-intensive business, and Exxon's capital spending budget last year was $19.9 billion, up 12.2 percent from 2005 in part because of higher costs. The company credited its level of spending in past years, when prices were lower, for contributing to the increase of 172,000 barrels a day, or 4 percent, in its oil and natural gas production in 2006. New crude oil production off the coasts of Nigeria and Angola, and in the Norwegian North Sea, Russia's Sakhalin Island and Abu Dhabi offset declines in older, declining fields.

Crude oil output is key to the success of the company. Exxon said it produced 2.7 million barrels a day in 2006, and oil and gas production accounted for $26.2 billion, or two-thirds of the company's profit. Henry Hubble, vice president of investor relations, said the company received $51.26 a barrel for its oil in the fourth quarter, down from $62.07 in the third quarter but down about $1 from the fourth quarter of 2005. He said the after-tax earnings on that production was $15.99 a barrel.

The decline in oil prices in the last three months of 2006 held the company's fourth-quarter results relatively steady. Exxon said it had a profit of $9.84 billion, or $1.69 a share, in the period, which was $1.15 billion more than 10 analysts surveyed by Bloomberg News had expected but down from $10.3 billion, or $1.65 a share, in the fourth quarter of 2005.

The company also spent lavishly to buy back its shares last year, boosting the net income per share. Exxon Mobil said it spent $8.4 billion in the fourth quarter to buy back about 115 million shares. During all of 2006, Exxon spent $25 billion buying back its stock, more than its capital spending budget. But it has no shortage of cash for new projects; the company finished the year with $33 billion in cash and $8 billion in debt.

Analysts were impressed with the company's earnings, and most are recommending that investors buy shares. Exxon "remains amongst the most attractive of the super majors," Doug Leggate, an oil analyst at Citigroup, said in a note to investors. Its fourth-quarter earnings, even after removing special one-time earnings, still handily beat analysts' estimates.

The stock closed yesterday at $75.08, up 98 cents a share.

Leggate and other analysts cautioned that Exxon's earnings depended heavily on international events, some of which could drive oil prices and others which could hurt the company's far-flung operations.

Venezuelan President Hugo Chávez said yesterday that Venezuela intends to take control of "no less than 60 percent" of four heavy crude joint ventures in the country's eastern Orinoco Belt by May 1. Exxon owns a portion of those operations. Hubble said yesterday that Exxon would prefer to retain its current level of ownership but that it would seek an "amicable resolution" that would "maintain shareholder value" in the projects.

Exxon was not the only company to benefit from high oil prices in 2006. Oil companies now occupy six of the top 10 positions in the list of the world's biggest publicly traded companies measured by revenue. One of the others, Royal Dutch Shell, yesterday said that its profit climbed 21 percent, to $25.4 billion, setting a record for a company listed on a British stock exchange.

Shell's results were boosted by a 4.1 percent gain in exploration and production earnings, partly because of the return of its Mars platform in the Gulf of Mexico after damage caused by Hurricane Katrina in 2005 was repaired.

The largest oil and gas refiner in the United States, Valero Energy, with 3.3 million barrels a day of refining capacity, said it had a profit of $987 million, or $1.59 a share, in the fourth quarter, down from $1.3 billion, or $2.00 a share, a year earlier. Valero noted, however, that the 2005 figures were inflated by post-Katrina refinery shortages. For the entire year, Valero's refining margins exceeded those of 2005.

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