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Originally published Friday, July 29, 2005 at 12:00 AM

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Big oil's output is shaky, but not its profits

Two of the world's largest oil companies, Exxon Mobil and Royal Dutch Shell, said yesterday that second-quarter profits rose by about one-third...

Two of the world's largest oil companies, Exxon Mobil and Royal Dutch Shell, said yesterday that second-quarter profits rose by about one-third, buoyed by high energy prices and higher worldwide consumption. The companies improved their earnings despite rising costs and lower output of oil and natural gas.

"It was a good day for oil," said Fadel Gheit, an analyst at Oppenheimer.

However, the mammoth quarterly profits at Exxon Mobil and Royal Dutch Shell — more than $7 billion and $5 billion, respectively — fell short of analysts' expectations and there is some concern on Wall Street about the oil giants' flagging output.

"The earnings that are coming out have been for the most part very impressive, near record levels, so whether they meet consensus or come up short, is less important in my mind," said Jacques Rousseau, analyst from Friedman, Billings, Ramsey & Co.

But "there are some concerns over big oil companies not growing production," he said.

Shares of Exxon Mobil rose 40 cents to $60 on the New York Stock Exchange. Royal Dutch Shell's stock price fell 1.3 percent on the Euronext stock exchange.

A major factor underpinning profit growth at major petroleum companies is the soaring cost of crude oil, which traded above $50 a barrel on world markets for much of the quarter. Lucrative transportation fuels such as gasoline, diesel and jet fuel are also trading at near-record heights and demand is rising globally as a result of economic growth.

In the United States, the average retail price of unleaded gasoline is $2.29 per gallon, an increase of 38 cents from a year ago. Diesel, which keeps the trucking industry humming, is selling for $2.34 a gallon, up 59 cents from last year.

Exxon Mobil, the world's largest publicly traded oil company, said yesterday that net income in the April-June quarter rose 32 percent to $7.64 billion, with gains coming from exploration and production, refining and sales of gasoline and other fuels. Revenue climbed 25 percent to $88.6 billion.

Exxon's net profit was equivalent to $1.20 per share. Excluding one-time items, earnings totaled $1.23 per share, a penny shy of the consensus estimate of analysts surveyed by Thomson Financial.

Exxon's profit from exploration and production jumped $1 billion to $4.9 billion in spite of a 4 percent decline in output.

Gheit said the segment stood out, but he still thought the figures should have been higher.


"The underlying cost structure for Exxon and the industry is definitely rising — and it could be rising pretty fast," he said.

A steep rise in the price of gasoline, diesel and other fuels enabled Exxon to increase its earnings from refining and retail sales by $714 million to $2.2 billion. Its chemicals business reaped $814 million, up $207 million from a year earlier.

The newly merged Royal Dutch Shell announced a 34 percent increase in second-quarter profit to $5.24 billion. That was below analysts' expectations of $5.509 billion.

Revenue jumped 33 percent to $82.64 billion, according to the Anglo-Dutch company, which reported earnings as a single entity for the first time yesterday following last week's unification of its parents, Shell Transport & Trading and Royal Dutch Petroleum.

Shell's quarterly profit from exploration and production surged 48 percent to $2.7 billion even as output declined by 1.5 percent.

United Airlines

Losses continue,

but there is hope

United Airlines said yesterday it lost $1.43 billion during the second quarter, nearly all of which was related to its ongoing effort to exit bankruptcy this fall.

The carrier said it recorded a $1.4 billion charge for reorganization items, including $602 million in costs stemming from turning over its employee pension plans to the federal government's pension insurer.

Bankruptcy protection likely will shield United from paying more than a small fraction of the restructuring costs, the company said.

The carrier has lost more than $7 billion since it entered bankruptcy in December 2002.

Excluding the reorganization costs, United's operating earnings grew to $48 million in the quarter from $7 million last year — despite $262 million in higher fuel costs.

"The important number to focus on is our operating earnings, which is the correct measure of the underlying strength of our business," United CEO Glenn Tilton said in a message to employees yesterday.

Tilton pointed to United's 5 percent revenue growth — to $4.42 billion from $4.19 billion in the year-ago period — and 3 percent reduction in non-fuel costs as signs that the airline has become more competitive.

Airline analyst Michael Boyd said United's operating profit is encouraging. But he said United must prove it can continue its momentum when it no longer has the benefits of bankruptcy protection.

"They're doing better, there's no question. But they got there through a Chapter 11 process," Boyd said. "They've got competition that got there without that protection."

Compiled from The Associated Press

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