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The Wall Street Journal: Exxon Mobil Posts Big Profit For Year Despite 4th-Quarter Slip: Shell’s Net Profit Rises 21% on Strong Oil Prices

By KEVIN KINGSBURY AND BENOIT FAUCON
February 1, 2007 8:40 a.m.

Exxon Mobil Corp. posted a 4.3% drop in fourth-quarter net income amid lower energy prices, though the company had the largest annual profit in U.S. history.

Meanwhile, Anglo-Dutch energy giant Royal Dutch Shell PLC said net profit rose 21% in the fourth quarter on the back of high oil prices.

Exxon, the world’s largest publicly traded oil company, reported net income of $10.25 billion, or $1.76 a share, for the fourth quarter, compared with $10.71 billion, or $1.71 a share, a year earlier. Per-share earnings rose because Exxon’s recent stock-buyback binge. Excluding gains, earnings were $1.69 a share. Analysts had expected $1.51 a share, according to Thomson Financial.

Revenue fell 9.4% to $90.03 billion from $99.34 billion.

For the year, Exxon’s net income was a record $39.5 billion, up 9.3% from 2005, while revenue increased 1.9% to $377.64 billion.

Upstream earnings, from the company’s oil-and-gas production business, dropped 12% to $6.22 billion amid lower natural-gas realizations and weaker volume driven by lower European demand.

Earnings at the downstream business, which buys crude oil and converts it to products like gasoline, dropped 18% to $1.96 billion. Lower refining and marketing margins more than offset the earnings benefit related to Exxon’s continuing efforts to efficiently manage inventories.

Chemical earnings excluding items jumped 49% to $1.24 billion amid higher volumes and profit margins. Offsetting the earnings weakness in Exxon’s petroleum business was a 24% drop in income-tax payments to $5.31 billion.

The Irving, Texas, company has been a cash-generating machine as crude-oil prices have surged in recent years. For 2006, Exxon distributed $32.6 billion to shareholders through dividends and share purchases, up 41% from 2005.

Exxon will hold a conference call at 11 a.m. EST.

Shell’s Net Jumps 21%

For Shell, net income was $5.28 billion, or 83 cents a share, up from $4.37 billion, or 66 cents a share, a year earlier. Revenue was flat at $75.5 billion.

Shell also posted a record full-year net profit as oil companies are still benefiting from historically high crude prices but are facing the combined challenge of industrywide cost inflation and governments’ pressure to sign less favorable contracts. Shell, one of the world’s largest oil companies by market capitalization, said net income for the year ended Dec. 31 was $25.44 billion, up 0.5% from $25.31 billion in the prior year, which had previously been the company’s record profit figure.
 
Shell said its reserves replacement ratio for group companies in 2006 is expected to be 165% to 185%, excluding oil sands. The ratio provides an indication of an oil company’s future growth. The positive replacement level follows the five downward revisions to reserves Shell made in 2004 and 2005, when it cut more than a third of previously booked reserves.

In 2006, Shell booked several large projects, including the 140,000-barrel-a-day Pearl gas-to-liquids project in Qatar, expected to produce three billion barrels of oil equivalent over its lifetime. Shell said last year, though, that it was in talks with the U.S. Securities and Exchange Commission to determine whether the company will be able to book reserves from the project.

Shell said last year that its 2005 reserves replacement ratio was expected to be in the range of 65% to 75%, for group companies and without associates. A Shell spokesman Wednesday couldn’t say what the final ratio was for 2005.

Write to Kevin Kingsbury at [email protected] and Benoit Faucon at [email protected]

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