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Houston Chronicle: Exxon profits hit record $36 billion

The amount is the largest by any U.S. company, analysts believe
Exxon Mobil Corp. posted a profit of $36 billion on sales of $371 billion for 2005, making it the best year the energy company has ever had.
In fact, Exxon Mobil's massive year-end earnings make it the most profitable year on record for any company in U.S. history, according to Standard & Poors, thrilling many analysts and investors and outraging some consumer advocates.
Exxon Mobil's stock price popped $1.82 per share on the news to close at $63.11 on Monday. Deutsche Bank analyst Paul Sankey said the company handily beat all the forecasts on profits.
“Today's result has surprised even bulls such as ourselves,” he said.
But while most on Wall Street rejoiced, many consumers stewed.
The Foundation for Taxpayer and Consumer Rights issued a statement claiming Exxon Mobil unfairly profited from hurricanes Katrina and Rita, echoing the sentiments of many of those with gripes about gasoline prices.
“No oil company should be allowed to reap world record profits from one of the nation's worst natural disasters,” FTRC President Jamie Court said.
Company execs have said they worked tirelessly to keep as much gasoline pumping into the market as they could in anticipation of the storms. In the aftermath, the company imported an extra 1 million barrels a day from Europe to fill the gap between supply and demand.
Taking out ads
Exxon Mobil and several other energy companies, including Royal Dutch Shell and ConocoPhillips, were the target of a widely publicized hearing on Capitol Hill in the fall where elected officials questioned their profits in the wake of the storms.
So the company anticipated the complaints.
Exxon Mobil took out full-page advertisements in several major newspapers on Monday, including the Houston Chronicle, New York Times and Washington Post, in an effort to defend profits and anticipate consumer questions.
The ad argues that, as a group, energy companies' profits are not out of line with other industries. Oil and natural gas companies earn, on average, 8.2 cents for every dollar of sales. A lot of other industries — from software to semiconductors and banking to biotechnology — make more money on every dollar sold.
But Exxon Mobil, which focuses intensely on efficiency, is a better performing company than the typical oil outfit.
For 2005, the company made 9.7 cents on the dollar, which an industry lobbying group pointed out was better than some big names but not as good as others. According to the American Petroleum Institute, Pepsi made 3.4 cents on every dollar. And GE made 7.5 cents per dollar. But those with higher profit margins include Big Mac-purveyor McDonald's, which made 11.6 cents on the dollar; Viagra-maker Pfizer, which made 20.1 cents on every the dollar; and Internet giant Yahoo, which made 45.5 cents on every dollar.
Exxon Mobil's 2005 profits are up 42 percent over 2004, but today American drivers are shelling out about 25 percent more than they were a year ago for a gallon of regular unleaded gasoline, according to the AAA price survey.
John Lowe, an energy economist and professor of law at Southern Methodist University, said that means consumers see oil companies as getting richer while their own pocketbooks are getting emptied.
“This should be no surprise,” he said. “When you take a very large company and then triple the market price that people pay for their product in a period of four years then you get huge profits. This is a phenomena of high oil prices. And it should be apparent that Exxon Mobil is not setting the price of oil. It's set by world markets.”
Exxon Mobil's sales and profits look especially large because of the scale of the industry.
Just how big is Exxon Mobil? Its $371 billion in sales last year make it, far and away, the biggest publicly traded company in the U.S. Not even Wal-Mart comes close.
If Exxon Mobil were a country, it would rank among the world's top 30 economies, ahead of more than 200 nations, including Saudi Arabia, Switzerland and Hong Kong.
Exxon Mobil has long argued that its international size and scope can often be difficult for the average consumer to grasp. The technological costs of finding and producing more crude oil and natural gas out of the ground are huge, too. Last year, Exxon Mobil spent $18 billion on exploring for more oil and revamping refineries to process more crude.
Buying stock back
Critics say they could have spent more. Last year Exxon Mobil put almost that much — some $16 billion — into buying back its own stock, which makes every shareholders' stake in the company more profitable. It's a program that makes Wall Street happy but, in effect, is slowly liquidating the company.
Ted Harper, an energy analyst at Frost Bank, said there's a Catch-22 at work in the energy world.
Oil is becoming harder and more expensive to find but demand is climbing. So the price goes up. And yet large companies have a tough time winning the right to drill in some of the most promising areas.
“If you're the size of Exxon, where do you go? To some extent they are sitting on cash because it's difficult to redeploy it at high returns,” Harper said.
“This speaks to the fact that, fundamentally, this is actually a tough time in the industry. Other companies are beginning to deploy more capital into alternatives like solar. At some point in time, energy as we know it will migrate into some other form.”

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