[Marxism] Exxon Sets Profit Record: $40.6 Billion Last Year

[Bonnie Weinstein]

Exxon Sets Profit Record: $40.6 Billion Last Year

By JAD MOUAWAD

February 2, 2008

http://www.nytimes.com/2008/02/02/business/02oil.html?ref=business

 

By any measure, Exxon Mobil¹s 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 company¹s 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 analysts¹ 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.

 

³Exxon sets the gold standard for the industry,² 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 ³unjustifiable.² 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.

 

³Congratulations to Exxon Mobil and Chevron ‹ for reminding Americans why
they cringe every time they pull into a gas station,² 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.

 

³Our earnings reflect the size of our business,² Kenneth P. Cohen, Exxon¹s
vice president for public affairs, said on a conference call with
journalists. ³We hope people will focus on the reality of the challenge we
are facing.²

 

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 world¹s 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 world¹s oil reserves. Last year, PetroChina
overtook Exxon as the world¹s 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
Exxon¹s 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.

 

³Access comes in cycles,² Mr. Cejka said, ³and I have got to admit, it¹s
tough right now.²

 

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 Moody¹s 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. OPEC¹s
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 ³vigilant attention to their impact on key market fundamentals.²