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Exxon, Shell Earnings Jump

THE WALL STREET JOURNAL

Plunging Crude-Oil Price Prompts Some Companies to Postpone Costly Projects

OCTOBER 31, 2008

By RUSSELL GOLD and GUY CHAZAN

Even as Exxon Mobil Corp. and Royal Dutch Shell PLC reported another round of enormous profits Thursday, Shell said it will postpone the expansion of a big energy project, in a sign that plunging crude prices and high costs are raising concerns among executives of the world’s largest oil companies.

Shell said Thursday it would defer to an unspecified date a decision on whether to expand its Canadian oil-sands operation. It said the delay will give overheated costs there time to cool off.

[Oil Profits]

Still, Shell said it was confident enough to push ahead on other projects, including several that investors had fretted were no longer viable at today’s lower oil and natural-gas prices.

That view was echoed by Exxon Mobil, which said it will maintain a cautious approach to capital spending and isn’t planning any reductions.

“Our investment plans are unaffected by the current decline in crude-oil prices,” said Kenneth Cohen, an Exxon vice president. “We don’t get excited on the highs or depressed on the lows.”

On Thursday, the two global giants — Exxon is the world’s largest oil firm by market capitalization, and Shell is the second-largest — both reported huge profits in the third quarter. Exxon’s $14.83 billion in net income set a record for profit from recurring business by a U.S. company.

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Though falling rapidly in recent weeks, oil prices peaked at the beginning of the quarter at about $145 a barrel and were very high through most of the three-month period, boosting the companies’ bottom lines.

Exxon’s $161.2 million-a-day profit was 58% higher than the same period a year earlier. The already-record results were boosted by a $1.62 billion gain from selling natural-gas transportation assets in Germany.

Revenue was up 35% to $137.74 billion. Exxon said it produced the oil and natural-gas equivalent of 3.6 million barrels a day during the quarter, down 8.3% from a year ago, partly because of the impact of two Gulf Coast hurricanes and foreign contracts that entitle Exxon to fewer barrels as prices rise.

Also on Thursday, Shell reported a better-than-expected profit of $8.45 billion in the third quarter, 22% more than in the same period last year. Hurricanes also hurt its production, which was down 6.6% year-on-year to 2.93 million barrels of oil equivalent a day. In 4 p.m. New York Stock Exchange trading, its shares fell $1.72, to $54.40, while Exxon’s rose 40 cents, to $75.05.

Both Exxon and Shell have used the past few years’ run-up in crude prices to build sizable cash positions and reduce their debt.

But they are keeping a wary eye on plunging oil prices and global economic woes that could depress fossil-fuel demand and prevent prices from rebounding for some time. Crude oil and natural gas prices are each more than 50% off their July highs.

Exxon, which has been criticized for not ramping up its capital investments faster when prices and demand were soaring, said it will spend $25 billion this year — consistent with a prior forecast — and between $25 billion and $30 billion annually between 2009 and 2012.

Shell plans to spend between $35 billion and $36 billion this year, the largest amount in its history.

The companies both emphasized that they, unlike several smaller energy companies, weren’t being dragged down by the current market turmoil. But Shell, the Anglo-Dutch energy giant, said it would postpone a decision that it had planned to make next year on whether to enlarge its Athabasca oil-sands project in Alberta.

Shell will “wait for costs to cool down in Alberta before any new investment decision is made,” Jeroen van der Veer, Shell’s chief executive, said. Shell didn’t say when it would revisit the decision.

Canada isn’t the only place where the economics have begun to look iffy. “We say $60 long term is not sustainable to develop our industry,” Christophe de Margerie, chief executive of France’s Total SA, said in an interview. “Today, even if costs stop increasing and then deflate, $60 is not enough to develop fields like the ones we have … in ultradeep offshore, or Athabasca, or Venezuela.”

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Write to Russell Gold at [email protected] and Guy Chazan at [email protected]

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