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THE NEW YORK TIMES: Exxon Sets Profit Record: $40.6 Billion Last Year

Published: February 2, 2008

By any measure, Exxon Mobil’s performance last year was a blowout.

The company reported Friday that it beat its own record for the highest profits ever recorded by any company, with net income rising 3 percent, to $40.6 billion, thanks to surging oil prices. The company’s sales, more than $404 billion, exceeded the gross domestic product of 120 countries.

Exxon Mobil earned more than $1,287 of profit for every second of 2007.

The company also had its most profitable quarter ever. It said net income rose 14 percent, to $11.7 billion, or $2.13 a share, in the last three months of the year. The company handily beat analysts’ expectations of $1.95 a share, after missing targets in the last two quarters.

Like most oil companies, Exxon benefited from a near doubling of oil prices, as well as higher demand for gasoline last year. Crude oil prices rose from a low of around $50 a barrel in early 2007 to almost $100 by the end of the year — the biggest jump in oil prices in any one year.

“Exxon sets the gold standard for the industry,” said Fadel Gheit, an oil analyst at Oppenheimer & Company in New York.

Oil companies have all reported strong profits in recent days. Chevron, the second-largest American oil company, said Friday that its profits rose 9 percent last year, to $18.7 billion; Royal Dutch Shell on Thursday reported net income for 2007 of $31 billion, up 23 percent and the largest figure ever for a British company.

The backlash against the oil industry, which has periodically intensified as gasoline prices have risen in recent years, was predictably swift on Friday.

One advocacy group, the Foundation for Taxpayer and Consumer Rights, called the profits “unjustifiable.” Some politicians said Congress should rescind the tax breaks awarded two years ago to encourage oil companies to increase their investments in the United States and raise domestic production.

“Congratulations to Exxon Mobil and Chevron — for reminding Americans why they cringe every time they pull into a gas station,” said Senator Charles Schumer, Democrat of New York.

Exxon vigorously defended itself against claims it was responsible for the rise in oil prices. Anticipating a reaction, Exxon has been running advertisements that highlight the size of the investments it makes to find and develop energy resources — more than $80 billion from 2002 to 2006, with an additional $20 billion planned for 2008. The company says that in the next two decades, energy demand is expected to grow by 40 percent.

“Our earnings reflect the size of our business,” Kenneth P. Cohen, Exxon’s vice president for public affairs, said on a conference call with journalists. “We hope people will focus on the reality of the challenge we are facing.”

Given the darkening prospects for the American economy, which may be headed toward a recession, some analysts said oil company profits might soon reach a peak. Oil prices could fall this year if an economic slowdown reduces energy consumption in the United States, the world’s biggest oil consumer.

Such concerns have pushed oil futures prices down about 10 percent since the beginning of the year. Oil fell 3 percent, to $88.96 a barrel, on Friday on the New York Mercantile Exchange. Exxon shares fell a half-percent, to $85.95.

Some analysts said high oil prices, and the record profits they create, were masking growing difficulties at many of the major Western oil giants. Faced with resurgent national oil companies — like PetroChina, Petrobras in Brazil, or Gazprom in Russia — the Western companies are having a hard time increasing production and renewing reserves.

As oil prices increase, countries like Russia and Venezuela have tightened the screws on foreign investors in recent years, limiting access to energy resources or demanding a bigger share of the oil revenue. At the same time, many of the traditional production regions, like the North Sea and Alaska, are slowly drying up.

Western majors, which once dominated the global energy business, now control only about 6 percent of the world’s oil reserves. Last year, PetroChina overtook Exxon as the world’s largest publicly traded oil company.

Recently, a quarrel over a major new field in Kazakhstan was resolved after an international consortium, which included Exxon, allowed the Kazakh national oil company to double its stake in the multibillion-dollar venture. In Venezuela, Conoco pulled out of a large heavy oil project last summer after failing to agree on new and much more restrictive terms with the government of President Hugo Chávez. Exxon has filed for arbitration in a similar case.

Speaking at an industry conference last month, Tim Cejka, the president of Exxon’s exploration business, acknowledged that access to oil fields was becoming increasingly challenging. But he said that the global oil industry has been through similar periods of restricted access.

“Access comes in cycles,” Mr. Cejka said, “and I have got to admit, it’s tough right now.”

Excluding acquisitions, Exxon was the only major international oil company with a reserve replacement rate exceeding 100 percent from 2004 to 2006, meaning it found more than one barrel for each barrel it produced, according to a report by Moody’s Investors Service, the rating agency. Exxon said it would release its reserve replacement figures this month.

Exxon increased its hydrocarbon production in the fourth quarter by 1 percent, thanks to growing natural gas output from projects in Qatar. Natural gas production rose 12 percent in the fourth quarter, to 10.4 billion cubic feet a day. Oil production fell by 6 percent in the last quarter, to 2.5 million barrels a day. Because of the structure of some of its production-sharing contracts in Africa, Exxon is entitled to fewer oil barrels as prices rise.

Exxon also spent $35.6 billion for share buybacks and dividends last year, $3 billion more than in 2006.

The OPEC cartel, which was meeting in Vienna on Friday, left its production levels unchanged, resisting pressure from developing nations to pump more oil into the global economy.

The Organization of the Petroleum Exporting Countries is set to meet again next month, and the cartel signaled it would be ready to cut production then to make up for a seasonal slowdown in demand in the second quarter. OPEC’s actions mean the cartel is determined to keep prices from falling below $80 a barrel, according to energy experts.

OPEC said in a statement that the uncertainties in the global economy required “vigilant attention to their impact on key market fundamentals.” and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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