Profits surge for Exxon Mobil, Shell

Major oil companies continued their earnings streak Thursday, with Exxon Mobil Corp. and Royal Dutch Shell becoming the latest to post big jumps in second-quarter profits, largely on the back of soaring oil prices.

Exxon Mobil, the world’s largest oil company, said quarterly profit surged 41 percent to $10.7 billion, while Shell nearly doubled net income to $8.66 billion.

While the companies benefited from improved refining margins in the U.S. and the addition of new oil and gas projects, the main driver was a 30 percent increase in the price of crude oil, which in the case of Exxon Mobil added $3.6 billion to the bottom line.

The price trend also has helped smaller rivals. BP on Tuesday said it swung back to a profit of $5.6 billion following a loss in the second quarter a year ago.

And ConocoPhillips on Wednesday said it netted $3.4 billion, down from the same period last year but still enough to beat Wall Street expectations. Chevron Corp., the last of the oil super-majors, is scheduled to report second-quarter results today.

Oil prices have surged from a year ago on civil unrest in the Middle East, a weak U.S. dollar and rising global energy demand.

Calls to end tax breaks

But critics seized on the numbers as the latest example of oil company profiteering amid a still-tough economy.

“America is swimming in debt, and oil companies are swimming in profits,” said Rep. Ed Markey, D-Mass., who advocates axing several oil industry tax breaks to help the U.S. solve its debt crisis.

Jacqueline Savitz, a senior campaign director with environmental group Oceana, called it “outrageous for taxpayers to be writing checks to the oil industry at the very moment when we’re talking about austerity budgets due to lack of revenue.”

But the oil companies defend the profits, saying they do not set oil or gasoline prices and that industry investment supports millions of U.S. jobs. In addition, they say, their profit margins — the percentage of total revenue that they book as profit after expenses – are lower than in many other industries.

“Apple has more control over its product pricing than Exxon does,” said Fadel Gheit, industry analyst with Oppenheimer & Co., who believes the oil industry has done a poor job of educating the public and politicians about its business.

Exxon Mobil’s second-quarter profits were the highest since the third quarter of 2008, when it hit a corporate earnings record of $14.8 billion. But the results, which amounted to $2.18 a share, still fell short of Wall Street estimates of $2.30 per share.

Investors responded by sending company shares down $1.85 to $81.46 in trading Thursday.

The Irving-based giant said oil and gas output in the quarter rose 10 percent to 4.396 million barrels of oil equivalent per day, stemming largely from the ramp-up of a major natural gas project in Qatar and U.S. shale gas fields.

David Rosenthal, Exxon Mobil’s vice president of investor relations and secretary, said during a conference call to discuss the earnings that the company continues to see benefits from its $41 billion takeover of XTO Energy, completed 13 months ago.

The acquisition has made the company the nation’s largest natural gas producer and has given it a platform to expand unconventional oil and gas holdings.

Exxon Mobil now controls 76 trillion cubic feet of oil and gas resources, nearly 70 percent more than what was recognized at the time of the merger, Rosenthal said.

That includes a $1.7 billion acquisition in June of more than 300,000 acres in the Marcellus shale in the U.S. Northeast. The company also has amassed sizable positions in unconventional plays in Poland, Argentina, Canada and other countries. “We’re pretty pleased with that progress,” Rosenthal said.

Jury still out on merger

But analysts said the jury is still out on the XTO merger. “I think the resource potential that they’ve added is a positive indicator that they’re adding value over and above the initial purchase price,” said Jeff Dietert, managing director at Simmons & Co. International, a Houston investment bank. But “it gets to be real gray what they might have done without XTO and what they have done with them.”

At Shell, net income for the quarter rose to $8.66 billion from $4.39 billion a year earlier. Production, however, fell 2 percent to 3.046 million barrels of oil equivalent a day in the quarter, mainly because of asset sales.

In the first half of the year, the largest European oil company started two major natural gas projects in the Middle East and expanded an oil-sands project in Canada’s Alberta region. The moves are part of a broader plan to increase daily output to 3.7 million barrels in 2014.