Exxon's profit fuels criticism

By Elizabeth Douglass and Richard Simon

Aug. 1, 2008 12 AM PT

Times Staff Writers

Exxon Mobil Corp. posted second-quarter earnings Thursday of $11.68 billion, once again topping its own record for the biggest three-month profit ever by a U.S. corporation.

Still, the massive income at the world’s largest publicly traded oil company pleased hardly anyone. Production fell during the quarter, and financial analysts had been expecting better earnings -- two factors that helped push the company’s stock down $3.95, or 4.7%, to $80.43 a share.

Activists renewed their complaints that Exxon and other oil companies weren’t investing enough to find new oil that would bring pump prices down, instead preferring to drill for wealth on Wall Street by purchasing their own stock.

In the quarter that ended June 30, the Irving, Texas, oil giant spent $8 billion buying back shares of its stock, compared with the $7 billion Exxon invested in exploration and other projects. The company also paid stockholders dividends worth $2.1 billion during the period.

“Exxon is pumping cash, not oil,” said Judy Dugan, research director at Consumer Watchdog, based in Santa Monica. “The big oil companies are wallowing in cash, and Exxon is the most aggressive in buying back its stock instead of taking the risks it should to both find new oil and develop new forms of energy.”

The company said its capital outlay was 38% higher than in the second quarter of 2007.

“We’re investing in any project that we have ready for funding. We do that first. Then the money that’s earned in our business is the shareholders’ money, and we return it to the shareholders,” Exxon Vice President Henry Hubble said in a conference call with reporters. “We’d like to do more” to increase energy supplies and would do more if the company had access to off-limits areas, he said.

Royal Dutch Shell also reported second-quarter earnings Thursday, posting 33% higher profit of $11.6 billion. The Anglo-Dutch company said that Nigerian unrest damped production during the quarter and that its net investment in projects totaled $5.7 billion. Shell gave $3.8 billion back to shareholders through stock repurchases and dividends during the quarter.

This week London’s BP and ConocoPhillips of Houston also reported sharply higher second-quarter profits. Chevron Corp. -- rounding out the list of the so-called Big Five oil firms -- is expected to follow suit when it releases results today.

Rep. Edward J. Markey (D-Mass.), chairman of the House Select Committee on Energy Independence and Global Warming, complained Thursday that the companies were on track to collect a combined $160 billion in profit this year, up from $123 billion in 2007.

Critics have denounced the oil industry for reaping high profits while consumers struggle with record fuel prices.

With fuel costs weighing on household budgets and the economy, some politicians have blamed oil company greed and market speculation, while others have pointed to policies that prevent new drilling along key coastal regions.

Democrats have stepped up their push to repeal billions of dollars in oil industry tax breaks. The party’s political strategists -- emboldened by a CNN/Opinion Research poll finding that 68% of respondents consider U.S. oil companies a major culprit behind high gasoline prices -- prepared to highlight oil company profits on the campaign trail in a new round of attacks against industry-friendly Republicans.

“These oil companies cannot continue to earn these profits, spend a pittance on renewable fuels to move America beyond oil and then block any efforts to shift billions in tax breaks to companies trying to bring about the next generation of clean energy,” Markey said.

Republicans, citing growing public support for more domestic energy exploration, have put Democratic leaders on the defensive for resisting an up-or-down vote on lifting the offshore-drilling ban.

Sen. Judd Gregg (R-N.H.), speaking on the Senate floor in support of expanded drilling, said, “Yes, the oil companies are making some big profits. . . . When they’re not spending it to look for oil, they’re paying it for dividends. And who gets those dividends? I suspect they’re Americans, Americans who invest in pension funds.”

Exxon’s second-quarter net income was 14% higher than the $10.26 billion it earned in the same quarter last year. The per-share profit was $2.22, up from $1.83 a year earlier, but short of the average of $2.52 a share expected by analysts polled by Thomson Financial.

Second-quarter revenue totaled $138 billion, up 40%.

The company’s flagship business -- exploring for, producing and selling crude oil and natural gas -- led the charge, as sharply higher prices pushed profit up 68% in the quarter, to $10 billion. Exxon said it received an average of $119.31 per barrel of oil sold during the quarter, nearly double the average price in 2007.

Refining and marketing profit for the quarter totaled $1.6 billion, down 54%, largely because of declining U.S. sales.

Total worldwide production fell 8%, to the equivalent of 2.4 million barrels a day. After removing the effects of a strike in Nigeria, the loss of Venezuelan production taken over by the government and price-related contract adjustments, Exxon’s worldwide production fell 3%.

elizabeth.douglass@latimes.com

richard.simon@latimes.com

Douglass reported from San Diego and Simon from Washington.

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What it’s worth

Exxon Mobil’s record $11.68-billion profit for three months would translate into:

$38.32 for every person in the United States

2,953,223,767 gallons of regular gasoline (U.S. average)

$1,485 for every second of the 91 days in the second quarter

32,901 median-priced homes in Southern California

543,255 new Toyota Priuses

205,869 new Hummer H2s