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Exxon's $40.6 billion record | Oil Watchdog

Exxon's $40.6 billion record

Sat, Feb 2, 2008 at 3:41 pm

    Exxon's $40.6 billion record

    The New York Times
    February 2, 2008

    by JAD MOUAWAD

    Exxon Sets Profit Record: $40.6 Billion Last Year

    By any measure, Exxon Mobil’s performance last year was a blowout.

    The company reported Friday that it beat its own record for the
    highest profits ever recorded by any company, with net income rising 3
    percent, to $40.6 billion, thanks to surging oil prices. The company’s
    sales, more than $404 billion, exceeded the gross domestic product of
    120 countries.

    Exxon Mobil earned more than $1,287 of profit for every second of 2007.

    The company also had its most profitable quarter ever. It said
    net income rose 14 percent, to $11.7 billion, or $2.13 a share, in the
    last three months of the year. The company handily beat analysts’
    expectations of $1.95 a share, after missing targets in the last two
    quarters.

    Like most oil companies, Exxon benefited from a near doubling
    of oil prices, as well as higher demand for gasoline last year. Crude
    oil prices rose from a low of around $50 a barrel in early 2007 to
    almost $100 by the end of the year — the biggest jump in oil prices in
    any one year.

    "Exxon sets the gold standard for the industry,” said Fadel Gheit, an oil analyst at Oppenheimer & Company in New York.

    Oil companies have all reported strong profits in recent days.
    Chevron, the second-largest American oil company, said Friday that its
    profits rose 9 percent last year, to $18.7 billion; Royal Dutch Shell
    on Thursday reported net income for 2007 of $31 billion, up 23 percent
    and the largest figure ever for a British company.

    The backlash against the oil industry, which has periodically
    intensified as gasoline prices have risen in recent years, was
    predictably swift on Friday.

    One advocacy group, the Foundation for Taxpayer and Consumer
    Rights, called the profits ”unjustifiable.” Some politicians said
    Congress should rescind the tax breaks awarded two years ago to
    encourage oil companies to increase their investments in the United
    States and raise domestic production.

    ”Congratulations to Exxon Mobil and Chevron — for reminding
    Americans why they cringe every time they pull into a gas station,”
    said Senator Charles Schumer, Democrat of New York.

    Exxon vigorously defended itself against claims it was
    responsible for the rise in oil prices. Anticipating a reaction, Exxon
    has been running advertisements that highlight the size of the
    investments it makes to find and develop energy resources — more than
    $80 billion from 2002 to 2006, with an additional $20 billion planned
    for 2008. The company says that in the next two decades, energy demand
    is expected to grow by 40 percent.

    ”Our earnings reflect the size of our business,” Kenneth P.
    Cohen, Exxon’s vice president for public affairs, said on a conference
    call with journalists. ”We hope people will focus on the reality of
    the challenge we are facing.”

    Given the darkening prospects for the American economy, which
    may be headed toward a recession, some analysts said oil company
    profits might soon reach a peak. Oil prices could fall this year if an
    economic slowdown reduces energy consumption in the United States, the
    world’s biggest oil consumer.

    Such concerns have pushed oil futures prices down about 10
    percent since the beginning of the year. Oil fell 3 percent, to $88.96
    a barrel, on Friday on the New York Mercantile Exchange. Exxon shares
    fell a half-percent, to $85.95.

    Some analysts said high oil prices, and the record profits they
    create, were masking growing difficulties at many of the major Western
    oil giants. Faced with resurgent national oil companies — like
    PetroChina, Petrobras in Brazil, or Gazprom in Russia — the Western
    companies are having a hard time increasing production and renewing
    reserves.

    As oil prices increase, countries like Russia and Venezuela
    have tightened the screws on foreign investors in recent years,
    limiting access to energy resources or demanding a bigger share of the
    oil revenue. At the same time, many of the traditional production
    regions, like the North Sea and Alaska, are slowly drying up.

    Western majors, which once dominated the global energy
    business, now control only about 6 percent of the world’s oil reserves.
    Last year, PetroChina overtook Exxon as the world’s largest publicly
    traded oil company.

    Recently, a quarrel over a major new field in Kazakhstan was
    resolved after an international consortium, which included Exxon,
    allowed the Kazakh national oil company to double its stake in the
    multibillion-dollar venture. In Venezuela, Conoco pulled out of a large
    heavy oil project last summer after failing to agree on new and much
    more restrictive terms with the government of President Hugo Chavez.
    Exxon has filed for arbitration in a similar case.

    Speaking at an industry conference last month, Tim Cejka, the
    president of Exxon’s exploration business, acknowledged that access to
    oil fields was becoming increasingly challenging. But he said that the
    global oil industry has been through similar periods of restricted
    access.

    ”Access comes in cycles,” Mr. Cejka said, ”and I have got to admit, it’s tough right now.”

    Excluding acquisitions, Exxon was the only major international
    oil company with a reserve replacement rate exceeding 100 percent from
    2004 to 2006, meaning it found more than one barrel for each barrel it
    produced, according to a report by Moody’s Investors Service, the
    rating agency. Exxon said it would release its reserve replacement
    figures this month.

    Exxon increased its hydrocarbon production in the fourth
    quarter by 1 percent, thanks to growing natural gas output from
    projects in Qatar. Natural gas production rose 12 percent in the fourth
    quarter, to 10.4 billion cubic feet a day. Oil production fell by 6
    percent in the last quarter, to 2.5 million barrels a day. Because of
    the structure of some of its production-sharing contracts in Africa,
    Exxon is entitled to fewer oil barrels as prices rise.

    Exxon also spent $35.6 billion for share buybacks and dividends last year, $3 billion more than in 2006.

    The OPEC cartel, which was meeting in Vienna on Friday, left its
    production levels unchanged, resisting pressure from developing nations
    to pump more oil into the global economy.

    The Organization of the Petroleum Exporting Countries is set
    to meet again next month, and the cartel signaled it would be ready to
    cut production then to make up for a seasonal slowdown in demand in the
    second quarter. OPEC’s actions mean the cartel is determined to keep
    prices from falling below $80 a barrel, according to energy experts.

    OPEC said in a statement that the uncertainties in the global
    economy required ”vigilant attention to their impact on key market
    fundamentals.”

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