By Steven Mufson
Washington Post Staff Writer
Thursday, July 31, 2008 12:41 PM
Buoyed by soaring oil prices, Exxon Mobil Corp. reported $11.7 billion in second-quarter profits, breaking its own record for the highest quarterly earnings in U.S. corporate history.
The 14 percent increase in profits from the second quarter of 2007 was almost entirely due to sharply higher net income from oil and gas production. High crude oil prices more than offset a steep drop in earnings at the company's refining and marketing businesses, as well as an 8 percent drop in the company's oil and gas production volume.
Revenues surged to $138 billion, up 40 percent from a year earlier.
Exxon's earnings were widely expected and reflect industry trends. Earlier, Royal Dutch Shell reported a 33 percent increase in profits. On Tuesday, BP reported a 28 percent increase from the second quarter of 2007, and last week ConocoPhillips said net income rose 13 percent.
The industry's results intensified calls in Congress and elsewhere for measures to either rein in tax breaks for oil firms or prod the companies to invest more vigorously in exploration or the development of alternative energy. Friends of the Earth called for an end to $32 billion in "handouts" that it said the industry would receive over the next five years.
Democratic presidential candidate Barack Obama seized on the Exxon announcement to poke at his GOP rival, Sen. John McCain (R-Ariz.).
"Perhaps the only thing more outrageous than Exxon Mobil making record profits while Americans are paying record prices at the pump is the fact that Senator McCain has proposed giving them an additional $1.2 billion tax break," Sen. Obama (Ill.) said. "Instead of an energy policy that reads like an oil company wish list, it's time to create a new American energy economy by investing in alternative energy, creating millions of new jobs, increasing fuel efficiency standards and ending the tyranny of oil once and for all."
Some oil analysts are fretting that high prices will start to hurt companies such as Exxon. "High prices are not good for its business," said Fadel Gheit, oil analyst at Oppenheimer & Sons. "It brings government greed [and] more taxes, limits access to resources, and increases oil service cost inflation."
Anticipating criticism, Exxon noted that its capital expenditures, which include exploration costs, were $7 billion in the second quarter, up 38 percent from a year earlier. "We continue to invest at record levels to bring new supplies to the market," Henry Hubble, Exxon's vice president of investor relations, told analysts today. But that capital spending was still less than the $8 billion spent buying back shares, which boosted the stock price and earnings per share.
Nonetheless, Exxon shares are down about 13 percent since the beginning of the year. Shares were down today as the big profit figure fell short of what analysts expected.
Without a one-time write-off for the final settlement of charges related to the Alaska oil spill by the Exxon Valdez tanker, the company's profits would have been $12 billion.
One factor worrying analysts is the company's falling production. Exxon's share of output was lowered by the expropriation of its interests in Venezuela, a strike by Nigerian workers and contracts in places such as Angola, which cut Exxon's equity share in output once prices go beyond a certain level. Even without those factors, however, the company said that its production of oil and gas would have dropped by 3 percent.