The Wall Street Journal: Exxon’s Net Rises to $10.36 Billion; Royal Dutch Shell Also Posts Rise

EXTRACT: Shell said its second-quarter profit jumped to $7.32 billion, or $1.13 a share, from $5.24 billion, or 78 cents a share, a year earlier. It said rising oil prices more than offset barrels lost from unrest in Nigeria and a $500 million provision for lawsuits related to Shell’s reserves restatements.

THE ARTICLE

By JEFFREY BALL and BENOIT FAUCON
July 27, 2006 4:50 p.m.

Exxon Mobil Corp., the world’s biggest publicly traded oil company by market value, reported its second-highest quarterly profit ever, a result likely to intensify political anger at Big Oil at a time when consumers in some parts of the country are paying more than $3 a gallon for gasoline during the height of the summer-driving season.

Buoyed by the surging global oil price, Royal Dutch Shell PLC, the world’s fourth-largest public oil company, also reported a huge profit jump.

Exxon said its second-quarter net income was $10.36 billion, up 36% from $7.64 billion in the year-earlier period. The Irving, Texas-based oil giant’s profit increase was even higher on a per-share basis — up 43%, to $1.72 a share from $1.20 a year earlier — because Exxon has been buying up its stock to reduce the number of shares outstanding.

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Take a peek at what to expect in the reports of other major companies.The second-quarter result was among the highest quarterly profits for any publicly traded U.S. company ever. It was slightly less than Exxon’s best-ever profit of $10.71 billion in last year’s fourth quarter. It also beat analysts’ expectation that Exxon would earn $1.64 per share in the first quarter, according to Thomson Financial.

Revenue for the quarter rose 12%, to $99.03 billion from $88.57 billion a year earlier.

Companies throughout the energy industry have been racking up huge gains. Shell said that its second-quarter net income surged 40%, to $7.32 billion. BP PLC, the world’s second-biggest publicly traded oil company, reported on Tuesday that its second-quarter net income rose 30%, to $7.27 billion. (See related article.)

Exxon stands as the tallest lightening rod for critics who say Big Oil is profiting too handsomely at consumers’ expense. It stoked political and consumer ire when it announced earlier this year that it paid Lee Raymond, its successful and longtime chairman and chief executive officer, $69.7 million in 2005 compensation and a $98.4 million lump-sum pension payout.

That pay package led to something of an investor revolt at Exxon’s annual shareholders’ meeting in May. Shareholders approved a nonbinding resolution opposed by Exxon management to require a majority vote, rather than a plurality, to elect an Exxon board member. It was the first time that Exxon Mobil shareholders approved a resolution management opposed, the company said. Also at the meeting, as a result of displeasure over Mr. Raymond’s pay package, four members of the Exxon board’s compensation committee received an unusually low percentage of votes for re-election.

Amid their surging fortunes, major oil companies have faced mounting investor calls to reinvest more of their money into pulling more fossil fuel out of the ground. Exxon argued it’s doing just that.

It said its combined production of oil and natural gas in the second-quarter rose 6% over the year-earlier period, and that its production of oil alone rose 9%, largely due to massive projects the company has started up in Africa. Those production increases are bigger than Exxon has reported in recent quarters.

Exxon also said it’s increasing its capital and exploration spending. Such spending totaled $4.9 billion in the second quarter, up 8% from the year-earlier quarter though up just 2% from this year’s first quarter and down 8% from last year’s fourth quarter. Because it sees additional “opportunities” to find and produce oil and gas, the company said in a statement, it expects to increase its capital-and-exploration spending for all of 2006 to $20 billion, which would represent a 13% increase over last year’s spending.

Exxon’s cash pile continued to grow. The company had $36.7 billion in cash on hand at the end of the second quarter, up 21% from the year-earlier period. Quarterly cash flow from operating activities was $11.3 billion, up 3% from a year earlier.

Exxon said it plans to return more cash to investors. It said it spent $7.9 billion in the second quarter on dividends and share buybacks to reduce shares outstanding, up 48% from a year earlier. And it said it will increase, to $7 billion in the third quarter from $6 billion in the second quarter, its spending on buybacks to reduce shares outstanding.

Shell said its second-quarter profit jumped to $7.32 billion, or $1.13 a share, from $5.24 billion, or 78 cents a share, a year earlier. It said rising oil prices more than offset barrels lost from unrest in Nigeria and a $500 million provision for lawsuits related to Shell’s reserves restatements.

The company also said it approved investment plans for its Qatar gas-to-liquids project and a Singapore petrochemicals complex. Amid steep cost inflation across the industry, Shell officials had indicated previously that they might take a closer look at the Qatar project’s costs before giving it the green light. The decision to go ahead is likely to give the nascent and cost-intensive gas-to-liquids industry a big boost.

Shell said its second-quarter revenue rose 1%, to $83.13 billion from $82.64 billion a year earlier.

Write to Jeffrey Ball at [email protected] and Benoit Faucon at [email protected]