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Exxon Profit Sets Record, Stirs Anger

Its annual and quarterly profit are the highest for any public corporation, but consumers see red.

January 31, 2006|Elizabeth Douglass | Times Staff Writer

On the strength of energy prices that hit all-time highs last year, Exxon Mobil Corp. reported earnings Monday that broke records -- that of Exxon and every other corporation -- sparking a fresh wave of anger from consumer groups.

The world's largest publicly traded oil company posted fourth-quarter profit of $10.7 billion, equal to more than $116 million per day over the last three months of 2005. For the entire year, Exxon Mobil earned $36.1 billion, eclipsing the high-water mark for U.S. corporate earnings that it set in 2004.

The oil giant's net income, like that of its oil industry brethren, was boosted mostly by high market prices worldwide for crude oil, natural gas and refined fuels such as gasoline. But the scale of Exxon Mobil's profit, and the company's effort to downplay it, brought renewed accusations that the oil industry was gouging consumers.

"They're raking in lots of money; energy prices are very high. There's a direct connection," said Tyson Slocum, director of the energy program at consumer group Public Citizen. "I see a big need for a windfall profits tax to capture at least some of these profits."

Exxon Mobil's fourth-quarter net income, equal to $1.71 a share, was 27% higher than the $8.4 billion, or $1.30 a share, the company earned in the year-earlier period. It even surpassed Wall Street expectations averaging $1.44 a share, according to a survey by Thomson Financial. Earnings for the quarter included a one-time gain of $390 million from the resolution of litigation.

Exxon Mobil's 2005 earnings, which equaled $5.71 a share, rose 43% from 2004.

The Irving, Texas, company posted fourth-quarter sales of $99.7 billion, up 20% from $83.4 billion in the same quarter of 2004. For the full year, Exxon Mobil's revenue rose 24% to $371 billion -- a figure that should easily exceed 2005 sales at Wal-Mart Stores Inc., the previous revenue leader with sales of $285 billion in the fiscal year ended Jan. 31, 2005.

"It's big. It's the biggest thing out there, and there's no ignoring it," Argus Research Corp. analyst Jeb Armstrong said of Exxon Mobil's profit. "There's a perception that they're making too much. The simple truth of the matter is that prices are set by supply and demand, and they are a price taker, not a price maker."

Most of Exxon Mobil's earnings increase came from worldwide exploration and production, which reported a 44% profit jump, while refining and marketing saw a 2% earnings rise.

Despite taking a hit to oil and natural gas production because of damaged rigs in the hurricane-ravaged Gulf of Mexico, Exxon Mobil's fourth-quarter production was the equivalent of 4.27 million barrels per day, down 1% from year-earlier production of 4.3 million barrels per day. Oil production rose 2.5% and natural gas output fell 5.8%.

The results pleased Wall Street. Exxon Mobil's shares rose $1.82, or 3%, to $63.11.

Howard Silverblatt, Standard & Poor's senior index analyst, said Exxon's quarterly and annual profit were record highs for a public corporation. He discounted higher quarterly numbers posted in the past by Ford Motor Co. and AT&T Corp. because they were boosted substantially by special items.

Exxon Mobil, aware that its profit could trigger a public backlash, tried to defuse critics.

"We recognize that consumers worldwide want and need reliable supplies of affordable energy," Chairman and Chief Executive Rex Tillerson said Monday in his first earnings report since the retirement of longtime CEO Lee Raymond.

"Our strong financial results will continue to allow us to make significant long-term investments required to do our part in meeting the world's energy needs."

In a recent conference call with journalists, an Exxon Mobil executive stressed that the firm -- which produces about 3% of the world's oil -- is a small player in the global energy market.

In addition, Exxon Mobil and the American Petroleum Institute have stressed in newspaper ads that oil company profit margins are below those of many other industries, when calculated as a ratio to total sales.

Consumer advocate Slocum scoffed at the comparison, noting that such a measurement is not used by the industry or Wall Street analysts when they weigh oil company performance. Slocum's argument won backing from an unlikely source Monday: Matthew Simmons, chairman of Simmons & Co. International, a consulting firm whose clients are oil companies.

"It makes me mad. It's duplicitous," Simmons said of the effort to belittle profits by using a sales ratio. "They're creating a lot more political enemies by doing it."

In November, a congressional panel summoned oil company executives to testify -- but not under oath -- about high energy prices and the record profits they posted in the third quarter.

On Wednesday, the Senate Judiciary Committee plans to hold hearings on whether mergers have lessened competition, but oil executives have declined to participate.

On Monday, the California Assembly rejected a windfall profits tax on a 28-43 vote, falling well short of the two-thirds majority required for passage.

Jamie Court, president of the Foundation for Taxpayer & Consumer Rights, was incensed: "We're in a state that has been price gouged more than the rest of the nation historically, and our Legislature can't even get a simple majority ... to say 'no more profiteering.' "

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(BEGIN TEXT OF INFOBOX)

Exxon's paycheck

Exxon Mobil's $36.1-billion profit for 2005 is about equal to the combined gross domestic products of Iceland, Uzbekistan and Jordan. Here's what it could buy:

131 - Airbus 555-passenger A380 jets

72,990 - Median-priced homes in Los Angeles County

281,443 - Hummer H1 Alphas

3,345,370 - One-year health insurance policies for a family of four

5,555,043 - Students' annual registration fees at UCLA

12,043,333,333 - MTA day passes

15,459,991,442 - Gallons of self-serve, regular gasoline

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Source: Times research

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