Los Angeles Times
April 27, 2007
by Elizabeth Douglass & Richard Simon, Times Staff Writers
Exxon, Valero profits jump;
The quarterly gains, coming at a time of soaring pump prices, prompt renewed calls for legislative action.
Oil giant Exxon Mobil Corp. and leading refiner Valero Energy Corp. cashed in on soaring gasoline prices during the first three months of the year — an accomplishment that on Thursday produced upbeat profit reports as well as a new chorus of condemnation from consumer advocates and politicians.
Exxon said its first-quarter profit jumped 10% to $9.3 billion, or $1.62 a share, as higher income from its refineries, gasoline sales operations and chemical plants more than offset a drop in production profits caused by lower prices for crude oil and natural gas.
The results at Irving, Texas-based Exxon were a company record for the first quarter, although not high enough to top the records it set last year. They represent a new twist for Exxon, however, because the gains did not come from soaring oil and natural gas prices, which drove its stunning 2006 income.
"It’s an incredible, incredible hot streak for refiners right now," said Tom Kloza, chief oil analyst at Oil Price Information Service in Wall, N.J. "And so far, April makes the first quarter look pedestrian."
On Capitol Hill, eight freshmen senators seized on Exxon Mobil’s profit news to launch a drive to pass energy legislation that would include instituting a windfall profits tax and rolling back oil industry tax breaks.
In California, the Foundation for Taxpayer and Consumer Rights provided a scathing response to Exxon’s earnings report.
"When refining profits are driving world-record profits, that means motorists are being gouged," said Judy Dugan, research director at the Santa Monica-based consumer group. "Congress and would-be regulators… should be demanding an end to profiteering by Exxon Mobil and its Big Oil brethren."
The backlash stems from a nationwide surge in retail gasoline prices that was unusual both for its size and its timing.
The U.S. average cost of self-serve regular rose more than 65 cents a gallon during a 10-week period beginning in February, before sliding less than a penny to $2.869 a gallon last week, the Energy Department reported Monday. Those increases hit motorists earlier than in previous years and well before the start of the traditional summer driving season.
The increases were highest in California, where the average pump price for regular gasoline passed the $3-a-gallon mark in mid-March, about a month earlier than in 2006. The statewide average price of $3.316 reported Monday was just shy of the record price of $3.332 hit last May.
Refiners such as Exxon have said the high prices reflect unrelenting fuel demand amid lower-than-normal production and fewer deliveries of imports. Gasoline production is down because planned maintenance and unexpected glitches have kept refineries off line longer than expected, they say.
"The market dynamics set what’s going on," Exxon spokesman Ken Cohen told reporters Thursday. "In the area of retail gasoline, we are a price taker, not a price maker."
San Antonio-based Valero, the nation’s largest refiner, reported first-quarter net income of $1.14 billion, or $1.86 a share, a 35% increase from $849 million, or $1.32, a year earlier. Valero operates 15 U.S. refineries, including two in California that had refining margins that topped those of the company’s other regional operations.
Earnings at Exxon’s refining and marketing operations totaled $1.9 billion for the first three months of 2007, more than a 50% increase from the same period last year. Much of the profit increase came from overseas fuel production and sales, where earnings jumped 81%. The company’s U.S. refining and sales operations, which include a refinery in Torrance, posted a nearly 24% increase for the quarter.
Exxon’s flagship oil and gas production and exploration business posted profit of $6 billion, down 5%. Total revenue for the quarter was $87 billion, down 2% from a year earlier.
Cohen of Exxon downplayed the results, saying the U.S. refining and marketing profits averaged 8 cents a gallon.
But that figure was almost certainly lower than what Exxon was collecting in California, judging by several published estimates of refining margins in the state.
Such margins subtract the cost of crude oil from the resulting sale price of gasoline and other products, and are considered an indicator of profit even though they do not account for other operating costs.
"Out in California, gasoline has been fetching more than $100 a barrel for about a month now," said Kloza, who noted that the cost of crude oil for California refiners has been well below the recent benchmark oil price of more than $65 per barrel. "That’s an incredibly lucrative business."
Shares of Exxon and Valero both achieved 52-week closing highs Thursday. Exxon rose 63 cents to $80.55 and Valero gained $1.42 to $71.74.
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Douglass reported from Los Angeles and Simon from Washington.