Exxon Mobil Earnings Surge
NY Times
Published: April 27, 2007

HOUSTON, April 26 — Despite a winter of relatively soft oil and natural gas prices, Exxon Mobil on Thursday reported another surge in profit for the first quarter of the year because of stronger earnings from its refining, marketing and chemicals businesses.

Exxon's continuing good fortunes — it said the results were its best ever for any first quarter — were particularly noteworthy given the mixed earnings picture reported in recent days by other large oil companies. Most of them cannot match the cost management and range of investments held by the world's largest publicly traded oil company.

Exxon, BP, ConocoPhillips, Occidental, Hess and other companies that reported this week generally acknowledged that profits from oil sales, though still hefty, had slowed in recent months.

While oil prices had climbed from an average of $20 a barrel through much of the 1990s to a record of more than $78 a barrel last July, oil prices settled to prices of $55 to $65 during the early months of the year. That was about $5 lower than last year.

Oil prices have crept up in recent weeks and gasoline stockpiles are dropping as the summer driving season approaches. But most experts say they expect OPEC to continue producing at levels that would keep prices at the pump for regular gas in most states at less than $3 a gallon. That will assure strong profits for oil companies, though probably not at record levels.

"Oil prices have really stopped going up on a year over year basis," said Mark Flannery, an energy analyst for Credit Suisse. "We may have seen the best of some these integrated companies. The earnings momentum is not as solid as it was in 2006."

The company, which is based in Irving, Tex., reported that its profits for the quarter grew by 10 percent because of higher profit margins for marketing, refining and chemical production. Profits from its chemicals business increased to $1.2 billion, from just under $1 billion.

Exxon reported that oil production in the quarter was slightly higher than a year ago, because of growing projects in the Middle East, Russia and West Africa. Natural gas production was lower, however, because of declining fields and reduced demand during a warm winter in Europe.

The company reported that it bought back 108 million shares of its common stock at a cost of $8 billion, reducing its shares outstanding to 5.6 billion, from 5.7 billion. Net income rose to $9.3 billion, or $1.62 a share, from $8.4 billion, or $1.37 a share, in the same quarter last year, despite a slight drop in revenue to $87.2 billion from $88.9 billion.

Shares of Exxon Mobil rose 63 cents to $80.55, a new 52-week high.

In contrast, BP reported this week a 17 percent drop in first-quarter profit because of the easing of oil prices and a drop in oil production to 3.91 million barrels a day, from 4.04 million barrels a day a year ago.

ConocoPhillips reported a rise in profits of almost 8 percent, but largely because of a $490 million in one-time gains from asset sales.

"Exxon is consistent," said Doug Leggate, a Citigroup energy analyst. "It sets targets and delivers and keeps their costs under control. The others aren't."

The wild card for the rest of the year could be this summer's weather, especially if there is a strong hurricane season in the Gulf of Mexico, even one that is milder than the season that produced Hurricanes Katrina and Rita and interrupted production and refining operations in 2005.

James J. Mulva, the ConocoPhillips chief executive, warned this week that "the concern we have is whether we're going to be able to run and provide the supply we need during the summertime period."

Another wild card for the oil companies and oil prices is the deteriorating relationship between the major oil companies and the Venezuelan government under President Hugo Chávez.

Five major companies have ceded control of their oil projects to the Venezuelan state oil company in the Orinoco River basin, but ConocoPhillips signaled resistance by not attending a signing ceremony on Wednesday. Venezuela's oil minister warned that the government might use oil workers to seize ConocoPhillips operations next week.

In a conference call on Thursday, Henry Hubble, Exxon's vice president for investor relations, said negotiations with the Venezuelan government over terms of the takeover "are continuing and will be for some time."

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