By Steven Mufson
Washington Post Staff Writer
Friday, May 2, 2008
Bolstered by winter's record crude oil prices, Exxon Mobil yesterday reported huge first-quarter profit and provoked new congressional vows to come up with legislation that would tax windfall profits or demonstrate concern about high gasoline prices.
The oil giant earned $10.89 billion, up 17 percent from the previous year. The amount was short of the all-time record Exxon set in the previous quarter but high enough to put the company on the defensive in the face of consumer ire and congressional indignation.
"Crude prices are at historic highs, and we recognize that they are having a significant impact on many in our society through higher gasoline prices and higher energy costs in other sectors," said Exxon's vice president for public affairs, Kenneth P. Cohen. He warned, however, that "high prices also have the potential to result in bad public policy, such as windfall profits tax, that will hurt consumers in the long run."
But Sen. Charles E. Schumer (D-N.Y.), who has proposed such a tax on oil companies, issued a statement saying: "Once again, consumers' pain is Exxon's gain. Oil companies are racking up obscene profits left and right while American families are stretched to the limit by skyrocketing gas prices. It's high time for Big Oil to pay its fair share."
Separately, the Federal Trade Commission said that it would take the first step in considering how to use new powers to prohibit market manipulation in the petroleum industry. "We understand that consumers are being hurt by high gas prices, and the commission remains vigilant in using its full authority to prevent unlawful behavior that affects gas prices," FTC Chairman William E. Kovacic said.
Despite Exxon's colossal profit, the company's stock fell yesterday as oil prices dropped, as investors appeared to shift gears, pull some of their money out of commodities and turn to stocks.
The price of oil and other commodities -- including copper, gold, natural gas, lumber and wheat -- fell broadly while the stock market surged. The Dow Jones Industrial average climbed 189.87 points, or 1.48 percent, closing over 13,000 for the first time since Jan. 3; the Nasdaq jumped 67.91 points. Crude oil, by contrast, slid for a third straight day, dropping 94 cents a barrel to $112.52. Exxon Mobil stock fell $3.37 a share to $89.70.
The dip in oil prices was partly due to lessened anxiety about supplies from Nigeria, Africa's largest oil producer. Exxon's vice president of investor relations, Henry Hubble, said yesterday that the union representing striking workers at Exxon's operations in Nigeria had directed its members to return to work as negotiations continue.
The week-long strike had shut down production at Exxon facilities, he said. When combined with attacks on Royal Dutch Shell pipelines by militants in the Niger River delta, the strike had reduced Nigeria's output by about half.
The dollar also strengthened against the euro, easing pressure on dollar-denominated oil prices.
But crude oil prices are still near record highs, and an enormous amount of money is flowing out of the United States as oil flows in. So far this year the nation has been paying nearly $1 billion a day for oil imports.
High crude oil prices have also swelled profit at Exxon. During the first quarter , the company produced 2.47 million barrels a day, about the same as Kuwait. After expenses and taxes, Exxon earned $23.34 a barrel, up 54 percent from the first quarter of 2007, according to a report by the investment firm Oppenheimer & Co. Exxon also earned substantially more from its natural gas production, which was equivalent to another 1.71 million barrels a day of oil.
But the company made less money than last year in its refining and marketing operations. As rapidly as prices for gasoline and diesel fuel have risen in the past four months -- the national average prices for unleaded regular gas and diesel hit new records yesterday at $3.623 and $4.251, according to the American Automobile Association -- they still haven't kept up with rising crude oil prices, Exxon said.
Exxon's refining and marketing profits totaled $1.2 billion, down 39 percent from the same period of 2007. Exxon's Cohen said the company earned less than a nickel a gallon in refining and marketing.
Exxon's profits grew less than those of some other giant integrated oil companies, in part because its oil and gas production declined about 5.5 percent. That disappointed analysts. Not counting the loss of production in Venezuela, which Exxon exited in a contract dispute over the government's move to take a majority stake in the company's oil operations, its worldwide oil and gas production dropped 3 percent. The causes were sharp declines in aging U.S. and European fields and contracts with Angola that give the government a larger share of production as prices rise.
While Exxon's Hubble said the company had 12 major production projects coming on line this year, descendants of the company's legendary founder, John D. Rockefeller, said on Wednesday that it should be turning away from oil and gas and toward alternative fuels and cleaner technologies.
"They are fighting the last war, and they're not seeing they're facing a new war," said Peter O'Neill, the founder's great-great-grandson, who heads a Rockefeller family . He said a group of family members would support four resolutions about the environment and corporate governance at Exxon's May 28 annual meeting.
Exxon's Cohen said he had met with the family members several times, and he played down the chances that they would prevail at the annual meeting. He said they were only "a handful" of family members and owned just .006 percent of the company's 5.4 billion outstanding shares.
The number of outstanding shares continues to decline, however, as the company buys back stock. Hubble said the company had spent $8 billion buying back shares in the first quarter as a way to boost the value of the stock for shareholders. That exceeded the company's $5.5 billion capital spending budget.
The buyback program has drawn criticism from those who say the money should be used to boost oil and gas supplies. Rep. Edward J. Markey (D-Mass.) said he would introduce legislation that would levy a 10 percent fee on share buybacks and redirect the money to low-income fuel assistance programs and renewable energy research.
Cohen said that Exxon had boosted its capital spending program for this year by 30 percent and that it was able to "fully fund all the attractive opportunities we have."