Exxon Mobil Corp. posted the fifth highest quarterly profit for any public company in history on Thursday, and with oil prices above $70 a barrel it could go down as the company’s weakest quarter for the year.
Exxon Mobil’s first-quarter was lower than its record fourth-quarter, when the world’s largest oil company reported the highest profits ever for any publicly traded company. And the earnings, which rose 7 percent to more than $8 billion, still fell short of analysts’ estimates.
But in what is sure to spur the growing furor over outsized energy industry earnings, Exxon Mobil’s massive profits may only increase in 2006 as it benefits from rising crude-oil prices and production, analysts say.
“This is only the beginning,” said Fadel Gheit, analyst for Oppenheimer & Co. “Let me tell you, it gets better after that. Oil prices will add huge amounts to earnings, at least a billion dollars.”
The earnings report comes amid consumer outcry in the U.S. about soaring gasoline prices, which average $2.91 a gallon nationwide, or 68 cents higher than a year ago.
It also lands as Washington lawmakers are looking to appease consumers with various proposals to make big oil companies pay more taxes or provide consumers with some other relief. But everyone acknowledges that little can be done in the short term to bring down prices.
“If we had a silver bullet, we would be proposing it to Washington right now,” said Ken Cohen, the company’s vice president of public affairs. He said Exxon Mobil was investing a growing portion of its profits in new oil and gas production, and that the company is sympathetic to the added energy-price burden on consumers.
Still, he said consumers and members of Congress need to “take a deep pause and a deep breath” because market forces will eventually bring supply and demand back into balance. He said Congress could help matters longer term by removing barriers to domestic drilling.
The increasing public scrutiny of Exxon arrives less than a month after the news that the company handed its former chairman and chief executive officer, Lee Raymond, a $400 million retirement package, when all pension payoffs and stock options are included, that sparked headlines across the country and calls in Washington to justify the huge compensation.
In January, Exxon posted the highest quarterly profits of any public company in history: $10.71 billion for the fourth quarter of 2005 and $36.13 billion for the full year.
Howard Silverblatt, a senior index analyst for Standard & Poor’s, said the latest profit figure still places Exxon fifth historically among quarterly earnings. Exxon also holds the first, second and fourth spots; Royal Dutch Shell PLC has the third spot.
In the first quarter, net income rose to $8.4 billion, or $1.37 per share, from $7.86 billion, or $1.22 per share, a year ago. Roughly three-quarters of that profit came from the company’s upstream division, which produces oil and natural gas.
Analysts polled by Thomson Financial were looking for a higher profit of $1.47 per share for the latest quarter.
Analysts and company executives identified two major contributors to coming up a dime short: higher taxes on oil and gas produced abroad and reduced income from its refining business, which spent heavily on maintenance in the aftermath of last year’s hurricanes.
The company’s net income from its refining, or downstream, operations was $1.27 billion, compared with $1.45 billion a year earlier.
Exxon was not alone in reporting robust first-quarter profits. On Wednesday, ConocoPhillips, the nation’s third-largest oil and gas producer, said profit rose 13 percent as stronger exploration and production results yielded the best first-quarter earnings since Phillips Petroleum Co. and Conoco Inc. combined in 2002.
Both companies benefited from higher crude oil prices, which are hovering above $70 a barrel on concerns about supply disruptions, strong global demand for crude, limited spare production capacity and geopolitical uncertainty.
Despite the outcry in Washington about energy industry profits, the sector does not have the strongest profit margins among S&P 500 companies. Pride of place for that goes to the healthcare industry, which is expected to have a first-quarter profit margin of 18.1 percent, according to S&P estimates, versus 10.4 percent for oil companies.
Still, oil is tops when it is measured in profit efficiency, according to Silverblatt. That’s because it constitutes 10 percent of the S&P 500 index’s market value, but contributes 15 percent of total earnings.
“So they’ve outdone themselves,” Silverblatt said.
Analyst especially liked Exxon’s report of a 5 percent production increase, a message the company repeatedly stressed to analysts and reporters.
“For a company that size, it’s phenomenal,” said Tina Vital, Standard & Poor’s equity analyst, also an engineer who once worked in the petroleum industry.
“No one can predict commodity prices, but volume growth is planning,” she said. “That’s how you move ahead and they are good at that.”
The company said its average sale price for crude oil in the U.S. during the quarter was $55.99 per barrel compared to $42.70 a year ago. It sold natural gas in the U.S., on average, for $8.31 compared to $6.18 during the same period one year ago.
Revenue grew to $88.98 billion from $82.05 billion a year earlier. Higher crude oil and natural gas prices and improved marketing margins were partly offset by lower chemical margins.
Placed in perspective, Exxon’s revenue for the three-month period was still greater than the annual gross domestic product of some major oil producing nations, including the United Arab Emirates ($74.67 billion) and Kuwait ($55.31 billion), according to statistics maintained by the Central Intelligence Agency.
Exxon said it invested $4.8 billion in capital and exploration projects, a 41 percent increase from 2005.
Exxon also said it returned $7 billion to shareholders through dividends of $2 billion and buying back $5 billion worth of shares, twice that of last year.