Yet Again, Exxon Breaks Its Record Quarterly Profit
Friday, October 31, 2008
Exxon Mobil smashed its own U.S. record for quarterly profits yesterday, ringing up $14.83 billion in net income thanks to soaring summertime crude oil prices. But with crude oil prices now less than half their July peak and the economic outlook bleak, the record may stand for a while.
Exxon's third-quarter earnings rose 58 percent compared to the corresponding period in 2007, and its per-share earnings of $2.86 were higher than what analysts expected, capping a week of strong profit numbers from the world's premier oil companies, all of which benefited from the spike in oil prices in July.
Royal Dutch Shell also posted higher earnings yesterday, beating analysts' estimates with a profit of $8.45 billion for the third quarter. Conoco Phillips, the third-largest U.S. oil company, said last week that its third-quarter profit jumped 41 percent, to $5.19 billion.
The recent drop in oil prices to less than half the July peak will probably lower oil company profits in the current quarter and the year ahead; yesterday, UBS, citing lower demand for oil as a result of the economic slowdown, cut its forecast for oil prices next year by 36 percent, to $75 a barrel.
Lower prices could also imperil some of the world's most expensive oil exploration and development projects. Royal Dutch Shell said yesterday that it would delay any decision on an expansion of its Athabasca oil sands project in Canada, citing inflated labor and equipment costs. Analysts have long said that Canadian oil sands, which are difficult to turn into liquid crude, only make economic sense if oil prices are higher than $65 a barrel.
"The cost overruns in Canada have been astronomical," said Fadel Gheit, oil analyst for Oppenheimer, "and it was not cheap to start with." Last week, Suncor said it was slashing capital spending in Canada's oil sands by a third.
Exxon spokesman Kenneth Cohen seized the occasion to portray Exxon as a pillar of strength in uncertain economic times. Pointing to the company's $37 billion cash hoard, he said Exxon would maintain its capital spending plans, expected to average more than $25 billion a year through 2012.
"Our investment plans are unaffected by the current decline in crude oil prices," Cohen said. "While there has been significant volatility in financial and credit markets, the commitment of Exxon is strong."
Nonetheless, the sheer size of Exxon's earnings incites criticism. Rep. Edward J. Markey (D-Mass.), chairman of the House Select Committee on Energy Independence and Global Warming, renewed his criticism of Exxon for not investing in renewable energy alternatives. Exxon and many analysts respond that it is better for Exxon to stick to what it knows, oil and gas, and let investors use dividends to invest in renewable energy if they choose.
Even with the recent fall in prices, the oil giants such as Exxon are still barreling toward full-year earnings that will easily set new marks in the history of U.S. corporate profits. Markey said the top four oil companies would earn $150 billion this year.
While people often calculate Exxon's earnings in terms of seconds -- it earned about $1,800 a second in the third quarter -- Cohen said it also paid more than $4,000 a second in taxes and more than $14,000 a second in costs. Revenue for the quarter was $137.74 billion.
Investors appeared to focus on the future, however, as Exxon shares fell in early trading and then rose to $75.05, up 40 cents for the day. The company's shares have dropped just over 20 percent this year; the Standard & Poor's 500-stock index has dropped 35 percent.