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Bloomberg: Exxon Mobil Profit Drops as Refining Margins Narrow (Update3)

By Joe Carroll

Nov. 1 (Bloomberg) — Exxon Mobil Corp., the world’s largest oil company, posted its biggest drop in quarterly profit in more than three years after equipment and power failures slowed gasoline output and refining margins narrowed.

Third-quarter net income fell to $9.41 billion, or $1.70 a share, from $10.5 billion, or $1.77, a year earlier, Irving, Texas-based Exxon Mobil said today in a statement. Per-share profit was 4 cents below the average of 16 analyst estimates compiled by Bloomberg, sending the company’s stock lower.

Retail gasoline prices in the U.S., the world’s biggest market for the fuel, fell almost 6 percent. At the same time, oil rose, squeezing the gap between crude costs and refined fuel prices. That margin, called a crack spread, and production disruptions outweighed gains from record oil prices.

“They had some disappointments in that crack spreads narrowed substantially,” said Douglas Ober, who manages the $1 billion Petroleum & Resources Corp. fund in Baltimore. “There was a modest decrease in demand as the driving season came to a close.” Exxon Mobil shares are Ober’s biggest holding.

Exxon Mobil shares fell $2.31, or 2.5 percent, to $89.68 at 9:34 a.m. in New York Stock Exchange composite trading. Before today, the stock had climbed 20 percent this year, less than the gains by smaller rivals Marathon Oil Corp., at 28 percent, and Chevron Corp., at 24 percent.

Revenue rose 2.8 percent to $102.3 billion.

Biggest Decline

The profit decline was the largest for Exxon Mobil since the first three months of 2004, when oil averaged about $35 a barrel, less than half its current price. Eight of 12 analysts surveyed by Bloomberg said Exxon Mobil’s four-year run of record annual earnings is over.

Exxon Mobil’s refineries processed 5.58 million barrels of oil a day during the quarter, down 3 percent from a year earlier, the company said. Lower fuel output from the company’s plants curbed sales of gasoline, diesel, jet fuel and other products by 2.8 percent.

Refining profit dropped 27 percent to $2 billion, led by a $358 million decline from U.S. plants.

Exxon Mobil is the latest international oil producer to report lower third-quarter earnings. Houston-based ConocoPhillips last week posted a 5.2 percent decline in net income, to $3.67 billion, on narrowing refining margins.

BP, Shell

London-based BP Plc, the world’s third-biggest refiner, said Oct. 23 that its profit dropped 29 percent to $4.41 billion. Royal Dutch Shell Plc, based in The Hague and second only to Exxon Mobil in size, reported a 16 percent gain in net income, to $6.92 billion.

Chevron Corp., the second-largest U.S. oil company, is scheduled to report its third-quarter results tomorrow.

Exxon Mobil has the highest return on capital among the world’s 10 largest oil companies by market value. It also has the second-lowest capital budget relative to sales in the group, behind only Brazil’s Petroleo Brasileiro SA.

Oil and natural-gas output from Exxon Mobil’s wells dropped 2.1 percent to the equivalent of 3.92 million barrels a day, led by a 14 percent decline in crude production in Africa, the company’s biggest source of oil. Lower output more than offset gains from higher crude prices, the company said.

Oil Profit Falls

Profit from oil and gas sales fell 3 percent to $6.3 billion. Chemicals earnings declined 11 percent to $1.2 billion as margins narrowed and sales by volume decreased.

Exxon Mobil’s sales last year exceeded the gross domestic products of such nations as Norway, Venezuela and South Africa. The company took in $39.5 million every 60 minutes during the second quarter.

Third-quarter gasoline demand in the U.S. rose 0.3 percent from a year earlier to an average of 9.53 million barrels a day. Imports of the fuel rose at almost seven times that rate, creating gluts in some regions, according to the U.S. Energy Department.

Gasoline accounts for 45 percent of the refined fuels burned in the U.S. every year, Energy Department figures showed.

Benchmark oil futures averaged $75.15 a barrel in New York during the quarter, a 6.4 percent increase from a year earlier. The futures last month climbed above $90 for the first time and today set a record at $96.24.

Natural Gas

The average price of natural gas, the most commonly used U.S. heating fuel, rose less than 1 percent to $6.24 per million British thermal units. Sales of oil and gas from Exxon Mobil wells account for more than half of the company’s net income.

The U.S. Supreme Court agreed on Oct. 29 to hear Exxon Mobil’s appeal of a $2.5 billion punitive damage award stemming from the Exxon Valdez oil spill in Alaska’s Prince William Sound 18 years ago.

The company, which traces its roots to the 1880s and John D. Rockefeller’s Standard Oil Trust, wants to avoid paying what would be a record for punitive damages. With oil trading around $93 a barrel this week, $2.5 billion represents about 10 days of output from Exxon Mobil’s wells.

Chief Executive Officer Rex Tillerson has expanded the search for new oil and gas deposits from the Arctic Ocean to New Zealand as part of his plan to spend more than $20 billion a year drilling new wells and building new chemicals plants.

The company plans to start production at 25 projects by the end of 2009 that will add the equivalent of 1 million barrels of daily oil production, Tillerson told analysts in March.

To contact the reporter on this story: Joe Carroll in Houston at [email protected]

Last Updated: November 1, 2007 09:35 EDT and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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