The Wall Street Journal-20080202-Exxon Posts Biggest Profit in U-S- History

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Exxon Posts Biggest Profit in U.S. History

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Exxon Mobil Corp. posted the largest annual profit in U.S. corporate history, reporting 2007 net income of $40.61 billion, fattened by soaring oil prices. The company beat its own record of $39.5 billion set in 2006.

Oil and natural-gas production declined for the year at the world's largest publicly traded oil company by market capitalization, and Exxon said its refinery output also fell slightly from a year earlier. However, its bottom line benefited from significantly higher global crude-oil prices, which briefly touched $100 a barrel earlier this year.

Chevron Corp., the No. 2 U.S. oil company, also reported Brobdingnagian profits. Its $18.69 billion annual profit was a record for the San Ramon, Calif., company.

Exxon also set a record with its $11.66 billion profit in the fourth quarter. This is the highest quarterly profit from recurring business ever posted by a publicly traded company, said Howard Silverblatt, a senior index analyst at Standard & Poor's. Ford Motor Co. and AT&T Inc. have posted higher quarters, but those were the result of massive one-time gains from a spinoff and discontinued operations.

But the results also showed the downside of rising oil prices, which pushed costs sharply higher. Exxon's costs rose 30% to $96.92 billion in the quarter, compared with a year earlier. Its capital spending was up 21% to $6.15 billion largely as a result of refining and chemical construction projects in China and Singapore.

The company is working on ways to lower costs, including making its operations more energy efficient and drilling wells faster, thereby lowering its $4 billion annual bill for renting drilling rigs, said Henry Hubble, vice president for investor relations.

Analysts applauded Exxon's ability to control costs compared to other global oil companies. "Because of their size and diversification and ability to control costs they seem to be well hedged from economic risk and commodity price risk and geopolitical risk as well," said Tina Vital, integrated oil equity analyst for Standard & Poor's.

Fourth-quarter income at Exxon's refining and chemical operations fell, excluding one-time gains from asset sales. Lower U.S. refining margins and global chemical margins hurt profitability as higher crude-oil costs were not fully offset by sales prices.

High energy prices also are emboldening cash-rich, oil-producing nations to grow more militant -- grabbing back assets, ripping up contracts and raising tax rates -- forcing Western oil companies to confront a future where access to the biggest remaining pools of oil and gas will be severely limited. About 81% of Exxon's income comes from operations outside the U.S.

Exxon's global production of oil and gas for the full 12 months of 2007 fell 1.3% compared with a year earlier. The company said production would have risen by 1%, if it hadn't been for the expropriation of assets in Venezuela, and the loss of 100,000 barrels a day of production as a result of the impact of rising prices on production-sharing contracts with foreign governments.

The Irving, Texas, company said it still has plenty of places to invest, though access is getting tougher.

Exxon reported fourth-quarter earnings of $2.13 a share, well above the mean forecast for $1.95 a share by analysts surveyed by Thomson Financial. Its per-share earnings were boosted by a robust share- repurchase program. Exxon spent $28 billion buying its own shares last year, reducing its share-outstanding count by 6%, said Mr. Hubble.

Chevron's fourth-quarter net income jumped 29%, as a result of record oil prices that helped the oil titan to more than offset a substantial drop in refining profits.

"Earnings for our upstream business benefited from a significant increase in the price of crude oil," said Chief Executive Dave O'Reilly. But profits in its refined-products business fell due to the higher cost of oil and refinery downtime in the U.S.

Chevron also said it was trimming its production forecast for 2008 by 5.4%, or 150,000 barrels, off the originally projected 2.8 million barrels a day.

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Isabel Ordonez contributed to this article.