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Friday, July 30, 2004 - Page updated at 12:00 A.M.
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Exxon Mobil, Shell pump out big profits

By DAVID KOENIG
The Associated Press

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DALLAS — Exxon Mobil, the world's largest publicly traded oil company, posted record profit of $5.79 billion yesterday, and Royal Dutch/Shell saw its earnings rise 54 percent, thanks to higher prices for oil and natural gas.

The sterling earnings reports, which came on top of strong results from BP and ConocoPhillips, may be small comfort to motorists paying about $2 for a gallon of regular unleaded — unless they also happen to be shareholders.

Exxon Mobil, for instance, earned a profit of more than $10 on each barrel of oil it produced, said Pat Mulva, the company's director of investor relations.

Mark Baxter, director of an energy institute at Southern Methodist University, said pump prices should be even higher, given that crude is hovering near $43 a barrel.

"These profits probably appear gross, and consumers wonder why they're not lowering the prices," Baxter said. "They could do that, but the first time they did, the CEO would get fired."

Baxter said oil companies need to make profits while the getting is good to carry them through times of low prices — oil was $10 a barrel a few years ago — and to take energy-exploration risks around the world.

Exxon Mobil Chairman and Chief Executive Lee Raymond said recently the company earns no more than 5 cents a gallon for refining and selling gasoline — although he didn't include profit from producing crude oil.

Analysts cite several reasons for high oil prices, notably that OPEC is producing at near capacity, demand continues to grow in the United States, China and other large markets, and fear that world events could curtail supplies and lead to shortages.

Oil prices surged to a record level this week — briefly above $43 a barrel for U.S. light crude — on new violence in Iraq and reports that Russian oil giant Yukos might be forced to suspend sales and put a possible pinch on world oil supplies.

But Russia's Justice Ministry yesterday lifted a freeze on the sale of property of three Yukos production subsidiaries, the proceeds of which Yukos claimed was needed to keep Russian pipelines running and keep it out of bankruptcy while its tax-evasion trial continues in Moscow.

Analysts said oil companies aren't charities, but some faulted the industry for not spending more on finding new sources of oil to meet rising demand.
 
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"Forty-dollar crude is a big gift to the exploration and production sector," said George Gaspar, an analyst with Robert W. Baird & Co. "They ought to be putting it into the ground, both in the U.S. and overseas. Mr. Consumer is going to be paying $3 and $4 a gallon in 10 years unless something is done to increase oil reserves."

Exxon Mobil earned $5.79 billion, or 88 cents a share, in the April-June period, compared with $4.17 billion, or 62 cents a share, a year earlier. That matched the forecast of analysts surveyed by Thomson Financial.

Sales jumped 24 percent to $70.69 billion from $57.17 billion, although oil and gas production rose only 1.4 percent.

Shares of Exxon Mobil rose 22 cents to close at $46.03, near their 52-week high of $46.82 set this month. The company earned $4 billion, compared with $2.6 billion in the same period a year earlier.

After stripping out the fluctuating value of Shell's oil and gas inventories, the company said its adjusted earnings would have been $3.77 billion, a 16 percent increase from a year earlier.

Sales rose to $62.5 billion from $58.1 billion.

Shell also announced it would pay a $120 million civil penalty to settle an inquiry by the Securities and Exchange Commission into the downgrade of the company's reserves.

The company said it agreed to pay a $31 million fine to resolve an inquiry by Britain's Financial Services Authority into the issue and will spend $5 million to improve internal controls. It still faces shareholder lawsuits.

Shell stunned shareholders in January when it downgraded 20 percent of its reserves from "proven" to less certain categories. Three other smaller downgrades followed, and the moves lowered reserves by 23 percent.

Reserves are a closely watched indicator of an oil company's future production, and investors can be alarmed by any reduction.

U.S.-traded shares in Shell Transport & Trading, the London-based parent that owns 40 percent of the group, rose 97 cents to close at $44.11 yesterday. Shares in Royal Dutch Petroleum of the Netherlands, which holds the other 60 percent of the group, gained 85 cents to $50.99.

Copyright © 2004 The Seattle Times Company

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