Los Angeles Times
November 2, 2007
by Elizabeth Douglass, Times Staff Writer
Record sales boost ExxonMobil despite 10% decline in quarterly earnings
Lofty oil prices gave ExxonMobil Corp. record-high sales in the
third quarter, but fuel prices didn’t keep pace, causing a
larger-than-expected 10% drop in the oil giant’s net income, the
company said Thursday.
The profit decline was the largest for Irving, Texas-based
ExxonMobil in several years, and helped trigger a nearly 4% drop in its
stock price. It represented a retreat from the gushing profits of 2006,
when energy companies raked in big gains from rising oil prices and
cashed in at the gas pump as well.
Royal Dutch Shell, BP and others already have reported lower
earnings compared with last year, and Chevron Corp. is expected to
follow suit today.
Consumer advocates were unsympathetic, noting that even with
the pullback, Exxon made more in three months than it did in the first
nine months of 2002, the last down year before company profit took off.
"Exxon has led the pack in setting a ‘new normal’ for its
profits, which ultimately come out of the budgets of carpooling moms
and pensioners struggling to buy home heating oil," said Judy Dugan,
research director at the Santa Monica-based Foundation for Taxpayer and
Exxon said its profit totaled $9.4 billion, or $1.70 a share,
for the quarter that ended Sept. 30, compared with $10.5 billion, or
$1.77, last year. Analysts, on average, had expected the company to
earn $1.75 a share, according to a survey by Thomson Financial.
Exxon’s shares, a large component of several major stock
indexes, dropped $3.49 to $88.50 and helped trigger a marketwide plunge
in stock prices.
Exxon Vice President Henry Hubble wasn’t fazed by the
year-over-year decline, telling analysts, "We had another good quarter,
as the fundamentals of our business remain strong."
Revenue rose to $102.3 billion, up 2.8% compared with $99.6 billion in the third quarter of 2006.
Worldwide production of oil and natural gas fell 2% during the
quarter, a decline attributed mostly to international contracts that
reduce Exxon’s share of production when oil prices rise as well as to
the loss in May of Exxon’s Venezuelan operation, one of four heavy oil
projects in which President Hugo Chavez’s government assumed control.
Earnings at the company’s core business of exploring and
developing oil and gas fell 3% to $6.3 billion, brought down primarily
by overseas operations.
Exxon’s fuel refining and sales business was the biggest drag
on earnings. Worldwide profit from that segment declined $734 million,
or 27%, from a year earlier.
Net income from U.S. operations fell $358 million, or 28%, as
profit margins on fuel sales plummeted from highs in 2006 and earlier
Analyst Mark Gilman, who follows Exxon for Benchmark Co., said
he expected refining margins to stay comparatively low industrywide for
the foreseeable future.
"The margin environment that we’ve seen over the last four
years was atypical and therefore not sustainable," he said. "Our
outlook for margins in 2008 is that they will be maybe half to
two-thirds what you saw in 2007."
Even with the recent declines, profits from refining remain
well above historical averages, according to figures compiled by Muse,
Stancil & Co.
On the West Coast, refining profit margins averaged $22.55 a
barrel, or 54 cents a gallon, through the first nine months of this
year, the estimates show. Although the figure is down from 2006, it is
more than 90% higher than 2004’s average of $11.76 a barrel, or 28
cents a gallon.
Also Thursday, the Alabama Supreme Court voted 8 to 1 to throw
out nearly all of a record $3.6-billion verdict that the state
government won against Exxon in a dispute over natural gas royalties.
The court eliminated the punitive damages that made up the bulk of the
award, leaving Alabama with $51.9 million in compensatory damages.
The Associated Press was used in compiling this report.
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