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The Wall Street Journal: Exxon Profit Leaps, Adding Fuel to Political Fire

EXTRACT:  Meanwhile, Shell is in talks with the Securities and Exchange Commission about whether reserves held in gas-to-liquids projects should be booked under the regulator’s rules, Chief Executive Jeroen van der Veer said Thursday. The issue of booking is sensitive for Shell, which was forced to restate reserves fives times in 2004 and 2005. 

Net Tops $10 Billion, a Gain
That Could Intensify Anger
About High Prices at Pump
By JEFFREY BALL and BENOÎT FAUCON
July 28, 2006; Page A2

Exxon Mobil Corp. reported its second-highest quarterly profit ever, a result likely to intensify political anger at the oil industry at a time when many U.S. consumers are paying more than $3 a gallon for gasoline.

Also buoyed by surging global oil prices, Royal Dutch Shell PLC reported a 40% profit jump.

Exxon, the world’s biggest publicly traded oil company by market value, said its second-quarter net income was $10.36 billion, up 36% from $7.64 billion a year earlier. The Irving, Texas, oil company’s profit increase was even higher on a per-share basis — up 43%, to $1.72 a share from $1.20 a year earlier — largely because of share buybacks.

MORE ON EARNINGS
 
Take a peek at what to expect in the reports of other major companies.The second-quarter result was among the highest quarterly profits for any publicly traded U.S. company ever. It was slightly less than Exxon’s best-ever profit of $10.71 billion in last year’s fourth quarter. Revenue for the latest quarter rose 12% to $99.03 billion.

Energy companies have been racking up huge gains amid higher prices for oil and petroleum-based fuels like gasoline. Despite public anger about prices at the pump, consumers don’t appear to be moderating their consumption of gasoline, Exxon officials said. “We’re selling everything we can make,” said Henry Hubble, the company’s vice president for investor relations. He said gasoline demand typically reflects economic growth, adding: “The economy’s performing well around the world.”

At 4 p.m. in New York Stock Exchange composite trading, shares of Exxon fell 13 cents, or less than 1%, to $66.47, while Shell’s class B American depositary receipts rose $1.30, or 1.8%, to $73.52.

Amid their surging fortunes, major oil companies have faced mounting calls to reinvest more of their money into pulling more fossil fuel out of the ground, thus adding more supply to world markets. Exxon argued it is doing just that, with second-quarter oil and natural-gas production rising a combined 6% from the year-earlier period, and production of oil alone rising 9%, largely because of massive projects the company has started in Africa. Those production increases are bigger than Exxon has reported in recent quarters.

Exxon also said it is increasing its capital-and-exploration spending. Such spending totaled $4.9 billion in the second quarter, up 8% from the year-earlier quarter, though up just 2% from this year’s first quarter and down 8% from last year’s fourth quarter. The company said it expects to increase its capital-and-exploration spending for all of 2006 to $20 billion, which would represent a 13% increase from last year’s level. Earlier, the company had said it expected its 2006 capital-and-exploration spending to reach $19 billion.

Exxon stands as the tallest lightning rod for critics who say the oil industry is profiting at consumers’ expense, and parting payments to its former chairman and chief executive, Lee Raymond, have provoked criticism. Exxon officials said they don’t expect the political anger toward the industry to let up soon. Citing coming midterm congressional elections, Kenneth Cohen, Exxon’s vice president for public affairs, said: “It seems as if in some of the tight races some of the candidates are trying to run against us instead of their opponent.”

The company had $36.7 billion in cash on hand at the end of the second quarter, up 21% from the year-earlier period. Quarterly cash flow from operating activities was $11.3 billion, up 3% from a year earlier. Its second-quarter profit amounted to more than $79,000 a minute.

Exxon said it plans to return more cash to investors. It said it spent $7.9 billion in the second quarter on dividends and share buybacks, up 48% from a year earlier. It said it will increase, to $7 billion in the third quarter from $6 billion in the second quarter, its spending on buybacks.

Shell said second-quarter profit jumped to $7.32 billion, or $1.13 a share, from $5.24 billion, or 78 cents a share, a year earlier. It said rising oil prices more than offset barrels lost from unrest in Nigeria and a $500 million provision for lawsuits related to Shell’s reserve restatements.

Meanwhile, Shell is in talks with the Securities and Exchange Commission about whether reserves held in gas-to-liquids projects should be booked under the regulator’s rules, Chief Executive Jeroen van der Veer said Thursday. The issue of booking is sensitive for Shell, which was forced to restate reserves fives times in 2004 and 2005.

Allowing the booking would be a bonus for Shell, which has been struggling to replace its reserves and has put a priority on such unconventional hydrocarbons. Thursday it approved final investment for a 140,000-barrel-a-day gas-to-liquids project.

Shell said its second-quarter revenue rose 1% to $83.13 billion.

Write to Jeffrey Ball at [email protected] and Benoît Faucon at [email protected]

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