Exxon Profits Dive $1 Billion 2nd Quarter : 87% Plunge Tied to $850 Million in Oil Cleanup Costs

Exxon Corp.’s second-quarter profits plunged by more than $1 billion, largely due to an estimated $850-million cost associated with the nation’s worst oil spill, the company reported today.

Net income fell 87% to $160 million, or 13 cents a share, from $1.2 billion, or 90 cents a share, in the comparable 1988 quarter, Exxon said.

Exxon spokesman Bill Smith said the drop was the result of “a special provision” allowing for an estimated $850 million, or 67 cents a share, in cleanup costs for the March 24 spill of the Exxon Valdez oil tanker in Alaska’s Prince William Sound.

Without the special provision, Smith said the company’s second-quarter earnings would have been $1.01 billion, or 80 cents a share.

The company said the charge “does not include the potential effect of litigation, which cannot reasonably be assessed at this time.”

$600 Million Spent

Exxon has already spent about $600 million on cleaning up the spill, the worst in U.S. history, Smith said.

He stressed the $850 million is only an approximate cost including estimated expenses and estimated insurance recoveries, and cautioned against drawing the conclusion that there is only $250 million remaining to be spent in the cleanup.

Exxon has previously disclosed it had an estimated $400 million in spill insurance.

Exxon revenues for the second quarter were $23.61 billion compared with $21.63 billion for the same period in 1988, Smith said.

Investors reacted negatively to the announcement, with Exxon off $1.125 a share at $45.625 in heavy trading on the New York Stock Exchange.

Michael Young of Smith Barney Harris Upham & Co. in New York said he changed his rating of Exxon stock this morning from a “hold” to an “avoid.”

Young said he had anticipated the sharp earnings drop since last week because congressional testimony indicated a write-off of this magnitude as a result of of the cleanup costs.

Consensus at Odds

Another analyst, who declined comment until he had seen the actual Exxon numbers, said the consensus among analysts had been that Exxon would report higher operating earnings, before the write-off, than 80 cents a share.

The nearly 11 million gallons of crude oil spilled from the tanker Exxon Valdez fouled hundreds of miles of water and coastline.

The cost of the Valdez spill appears likely to approach that of the March, 1979, near-meltdown at the Three Mile Island No. 2 nuclear power plant in Pennsylvania. Cleanup efforts in that accident, which continue after more than 10 years, have cost General Public Utilities Corp. an estimated $1 billion.

Exxon Chairman L. G. Rawl said that despite the cost of the cleanup, Exxon’s financial condition remains strong. “We are continuing to pursue our long-term business strategies and to implement planned capital programs,” he said.