Exxon Mobil reports biggest quarterly profit ever in U.S. Exxon earns record $11.7B, misses expectations

Shell also reports massive profit despite decline in oil production

Exxon Mobil beat its own record for the highest quarterly profit ever hit by a U.S. company -- posting $11.7 billion for the second quarter this year with an 8 percent drop in production -- but it couldn't top Wall Street's expectations.

The Irving-based behemoth's $2.22 of net income per share missed the analysts' consensus of $2.52, but it was a 14 percent increase from the $10.3 billion, or $1.83 per share, posted in the second quarter of last year.

It also beat the company's all-time quarterly record of $11.6 billion in the last three months of 2007.

Excluding a $290 million charge related to the $508 million punitive damages award for the 1989 Exxon Valdez spill set by a recent U.S. Supreme Court decision, quarterly earnings rose 17 percent to $11.9 billion, or $2.27 per share. Revenue was $138 billion, up from $98 billion a year ago.

"We expect that these results will be viewed negatively today," Simmons & Co. International said in a note to investors.

Exxon shares fell $2.61, or 3 percent, to $88.77 in midday trading today on the New York Stock Exchange.

Exxon's announcement came a few hours after Royal Dutch Shell reported a 33 percent increase in second quarter profits at $11.56 billion, or $1.87 per share, up from $8.67 billion, or $1.38 a share. However, The Hague-based company's profits were $7.83 billion excluding one-time items and gains or losses from inventories.

Shell's oil and gas production fell less than 2 percent. Shell's shares fell $2.22, or 3 percent, to $71.47 in midday trading on the NYSE.

Last week Houston-based ConocoPhillips announced a 13 percent increase in net income during a quarter in which oil prices rose to $140 a barrel from $100.98. London-based BP announced a 28 percent increase in profits on Tuesday. San Ramon, Calif.-based Chevron will round out results announcements among the world's largest oil companies on Friday.

Rex Tillerson, Exxon Mobil's chairman and CEO, said in a statement that record crude and natural gas prices were partially offset by lower refining and chemical margins, lower production volumes and higher operating costs. The company spent $7 billion in the second quarter on capital and exploration projects, up 38 percent. But Exxon Mobil spent $8 billion buying its own stock.

``We are demonstrating our commitment to return cash to our shareholders,'': Henry Hubble, vice president of investor relations, told analysts today. ``The way we think about the buyback, it's a distribution. We view it as nothing more than a distribution.''

The 8 percent drop in oil and gas production stemmed largely from the company's decision last year to walk away from its Venezuela operations last year rather than agree to terms giving majority control to that country's government-owned oil company, Petroleos de Venezuela, or PDVSA. Other factors included a Nigeria labor strike and lower entitlements under production-sharing contracts with other countries. Excluding those items, production fell 2.5 percent, the company said.

Exxon Mobil's refining segment earned $1.5 billion, down $1.8 billion from the second quarter of 2007. A refining margin is the difference between what companies pay for crude and the selling price of gasoline and other products made from it, and those margins have been squeezed amid skyrocketing oil prices. Companies that are particularly refining-heavy have felt the squeeze more than others, including Houston-based Marathon Oil, which said today it's considering splitting off that part of the company.

``If you see a rapid run-up in crude prices like we saw, there's always some compression that goes on,'' Hubble told analysts. ``That generally will have a negative impact on the margins we capture.''

New York oil futures, which had never traded as high as $112 before the second quarter, surged to a record $143.67 in June. Each $1 gain in the price of oil boosts Exxon Mobil's net earnings by 11 cents a share, according to William Featherston, an analyst at UBS Securities LLC.

Natural gas rose even faster than oil in this year's first half, and the average second-quarter price jumped 50 percent to $11.47 per million British thermal units. Exxon Mobil's output is about 60 percent crude and 40 percent gas. Oil and gas sales account for more than 80 percent of profit.

On Capitol Hill today, Democrats decried the oil industry's blockbuster profits, with Sen. Charles Schumer, D-N.Y. arguing ``It's Christmas in July'' in the board rooms of the major oil companies.

Democrats noted that between 2004 and 2007, the five largest oil companies coughed up nearly $181 billion to buy back their stock and boost the value of their investors' existing shares -- 18 times what they spent for research and development in the same period.

``What's good for Exxon Mobil is not good for America,'' Schumer said.

In a bid to blunt some of the criticism, the American Petroleum Institute, the oil industry's trade group, took out full-page advertisements in the Washington Post and a variety of Capitol Hill publications.

Exxon Mobil's refineries can process 6.3 million barrels of oil a day, or 7.3 percent of the world's crude supply.

Retail gasoline prices increased 27 percent to a second- quarter average of $4.10 a gallon in the U.S., which accounts for more than half of Exxon Mobil's worldwide sales of the fuel.

Chronicle writer David Ivanovich and Bloomberg News contributed to this report.

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