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Exxon Moves to Head Off Backlash

With oil firms poised to report record profits, the industry leader tries to blunt criticism.

January 21, 2006|Elizabeth Douglass | Times Staff Writer

With oil companies poised to unveil record profits for 2005, industry leader Exxon Mobil Corp. on Friday moved to blunt the backlash it expects from politicians and consumers still angry over high fuel prices.

In an unusual move for the tight-lipped oil giant, an Exxon Mobil executive held an hourlong electronic news conference to downplay the company's high profits and the influence it has in the world fuel markets.

The event was part of a renewed effort to bolster the industry's image and to calm politicians considering a windfall profits tax and other legislation that oil companies oppose.

"They're trying to do what they can to frame the way people respond to [the profits], and that's a reasonable strategy," said Barbara Kahn, a marketing professor at the University of Pennsylvania's Wharton School. "Whether or not it's effective is a different matter."

Exxon Mobil Vice President Ken Cohen acknowledged that when the company and its industry brethren post fourth-quarter and full-year 2005 earnings -- a process that begins next week -- the results probably would trigger public outrage. That's what oil companies got when they reported record profits for the third quarter, a period that included post-hurricane gasoline prices above $3 a gallon.

"Many people say that the energy industry is reaping unfair profits and that consumers are paying the price," Cohen said. "But one has to have a point of reference. The reason that energy industry earnings are so high is that our business is immense."

Cohen took pains to downplay Exxon Mobil's role in the world of oil. The company supplies just 2% of the world's energy and about 3% of its oil, he stressed. So "while Exxon Mobil is big ... we do play a relatively small role in providing energy to the world."

Irving, Texas-based Exxon Mobil has long been a focal point for industry criticism. It is the world's largest publicly traded oil company and it has $34 billion in its coffers -- a sum that could pay for the construction of more than a dozen refineries. According to Cohen, that's enough to fund Exxon Mobil operations for the next nine months.

"They don't want to be perceived as a big company," Kahn said. "And big and small are relative terms."

On Jan. 30, the company is expected to post 2005 operating profit of around $5.14 a share, or about $32 billion, up 30% from its record 2004 results of $3.97 a share, according to company data and a survey of analysts by Thomson Financial. Analysts on average expect Exxon Mobil to report fourth-quarter operating profit of $1.44 a share, an amount that would eclipse year-earlier results as well as third quarter 2005's operating profit of $1.32 a share.

During the quarter ended Sept. 30, Exxon Mobil reported net income of $1.58 a share, or $9.9 billion. Third-quarter sales topped $100 billion, and if Exxon Mobil's fourth-quarter results are similar, as expected, the oil giant's 2005 revenue could exceed that of retail giant Wal-Mart Stores Inc.

Even with escalating hurricane repair costs cutting into its results, the oil industry will report earnings 5% above the stellar third quarter, Friedman Billings Ramsey analyst Jacques Rousseau said in a Jan. 10 report. Rousseau said he hiked his earnings estimates for most oil companies after the cost of crude oil shot back up in the last half of December.

"All these companies will make more money than they have made in any quarter in their history," said Fadel Gheit, an analyst at Oppenheimer & Co.

Gheit said oil companies were "working very hard at improving their public image" in the face of unfavorable opinion polls and unflattering portrayals such as the one in the oil-themed political thriller "Syriana." But he added: "The companies should not be ashamed of their profits.... There is no such thing as obscene profit if you earn it."

Tyson Slocum of Public Citizen doesn't think the industry has earned it. Crude oil futures prices, which neared $70 a barrel Friday, are being pushed up by fears about future supplies and "have no relation to the cost of extracting and transporting and processing crude oil," he said.

"Exxon Mobil is nervous, because when the earnings come out, they are going to be absolutely tremendous," said Slocum, director of the consumer group's energy project. "You might see some proposals in Congress to hold the industry accountable."

Some legislation has already surfaced, including a windfall profits tax bill in California, introduced by San Leandro Democrat Johan Klehs, which won approval Thursday from an Assembly committee.

In his webcast and phone presentation Friday, Cohen stressed that Exxon Mobil and other oil companies were not to blame for the high gasoline, natural gas and heating oil prices that had strained household and business budgets in the last year.

"Oil and gasoline are global commodities and are subject to price swings in the same way as agricultural products, minerals and steel, and it's a very competitive market," he said.

Cohen added that profits in the oil and gas industry amounted to 8.2 cents for every dollar of sales for the third quarter of this year, a level well below that of pharmaceutical, semiconductor and consumer services companies.

Slocum of Public Citizen called that comparison misleading, noting that oil companies use a different yardstick to tout their results to shareholders. With oil stocks outperforming many other sectors, "the market is looking at these companies and saying, 'This is a fantastic investment.' "

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