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At Exxon Mobil, a Record Profit but No Fanfare

New York Times
January 31, 2006

HOUSTON, Jan. 30 — Exxon Mobil, aided by strong energy prices, disclosed Monday that it had set a record for profits among American companies, reporting $36 billion in annual income. But while most companies would be proud to trumpet record profits, Exxon Mobil did everything it could to play down the news.

For Exxon Mobil, which also handily widened its lead over Wal-Mart as the company with the largest revenues in the nation, the report was an embarrassment of riches. Anxious about criticism of the results, executives began laying the groundwork months ago to try to prevent a political reaction against the company and the energy industry.

For example, Exxon Mobil paid for advertisements in leading newspapers arguing that profit margins in the industry lagged far behind those of other industries, like pharmaceuticals and banking.

Still, growing oil profits are generating new scrutiny of the industry, with legislators and taxpayer groups expressing concern over Big Oil's good fortune, as soaring energy prices put increasing pressure on the pocketbooks of consumers.

"If it's Google, no one asks about the profits because they're too busy buying the stock," said Amy Myers Jaffe, associate director of the energy program at Rice University. "Exxon is different. We have these emotional feelings related to gasoline because there's no readily available substitute."

Exxon Mobil's results on Monday, of course, caused jaws to drop; by some measures, the company became richer than some of the world's most pivotal oil-producing nations. Exxon Mobil reported a 27 percent surge in profit for the fourth quarter as elevated fuel prices gave rise to a full-year profit in 2005 of $36.13 billion on revenue of $371 billion. Exxon Mobil said its overall profit climbed more than 40 percent last year, while its tax bill rose only 14 percent.

"It's outrageous for big oil to be making these kinds of profits," said Representative Eliot L. Engel. Mr. Engel, a Democrat from New York, has sponsored legislation with a leading House Republican, Representative Jack Kingston of Georgia, to provide new incentives for alternative fuels and energy conservation technologies.

"We don't need any more tax breaks for the industry, any more sops to the industry that's making record profits," Mr. Engel said.

Gasoline prices at the pump are rising again, with the average price of regular unleaded gasoline up nearly 7 percent from a month ago, to $2.34 a gallon, according to AAA, the automobile club.

In one measure of Exxon Mobil's wealth and influence, its revenue of $371 billion surpassed the $245 billion gross domestic product of Indonesia, an OPEC member and the world's fourth most populous country, with 242 million people.

The company's huge profit report came as no surprise to the White House or to lawmakers in either party, but it arrived just as Congress was preparing to resume a fight over imposing a one-time windfall profits tax on the major oil companies.

Last fall, the Republican-controlled Senate passed a bill to extend about $60 billion worth of tax cuts over the next five years, but it also included a provision that would impose a one-year tax increase of $5 billion on the nation's largest oil companies. The measure is unlikely to survive. President Bush has already threatened to veto the tax bill if it includes the tax on oil companies, and House Republicans included no comparable measure in their own tax bill.

Another measure approved in the Senate would effectively remove the foreign tax credit that the nation's three largest oil companies, Exxon Mobil, Chevron and ConocoPhillips, receive for taxes paid in other countries. Most energy analysts do not see the measures winning approval in the House, but Exxon Mobil executives remain concerned.

"We take these issues very seriously," said Mark Boudreaux, a company spokesman. "We realized that we needed to do a better job of explaining how the industry works."

To help make its case, the company organized slide shows for groups of journalists ahead of the report, explaining that its operations accounted for only 3 percent of global oil production.

Republican lawmakers were on the defensive on Monday. Not only are they under heavy pressure from party leaders and from the White House to kill the proposed tax on oil companies, but they also inserted more than $2 billion in additional tax breaks for oil and gas companies in the energy bill that Congress passed last November.

A spokesman for the House speaker, J. Dennis Hastert, said the oil companies had to explain themselves better and to offer more information on their plans to lower fuel prices by expanding their refining capacity in the United States.

"The message from the speaker is that oil companies need to do more work to bring oil and gas prices down," said Ron Bonjean, a spokesman for Mr. Hastert, who is scheduled to meet on Tuesday with the president of the American Petroleum Institute.

"Companies make profits, and that's O.K.," Mr. Bonjean said. "But when you're dealing with a family's bottom line, we'd like to see some kind of plan to address rising costs."

Executives at Exxon Mobil, which is based in Irving, Tex., have been trying in recent weeks to reposition the public discussion of the company's profit by comparing the industry's results to those of other industries.

For instance, pharmaceutical companies earned 18.6 cents for each dollar of sales in the third quarter of 2005, and banks 18 cents, compared with 8.2 cents at oil and natural gas companies, said Mr. Boudreaux, the Exxon Mobil spokesman.

Still, the company's profits stand out by almost every measure. Exxon Mobil's profit last year of $36.1 billion easily surpassed the earlier record of $25.3 billion, which Exxon Mobil had set in 2004, according to Howard Silverblatt, senior index analyst at Standard & Poor's in New York. Among industrial companies, only the Ford Motor Company's profit of $22 billion in 1998 comes close to Exxon Mobil's success in recent memory, Mr. Silverblatt said. Wal-Mart, in the year that ended Jan. 31, 2005, had net income of about $10.3 billion on sales of $285 billion.

Exxon Mobil's profit climbed last year thanks largely to higher prices for oil and natural gas, but also for other reasons, including higher margins at its refineries, the start of oil production at a project on Sakhalin Island in Russia's Far East and a gain from the sale of a stake in Sinopec, an energy concern controlled by China's government.

Exxon Mobil shares surged to $63.11, up $1.82, or 2.97 percent. However, even as investors applauded Exxon Mobil's new chief executive, Rex W. Tillerson, who succeeded Lee R. Raymond at the start of this year, Exxon Mobil's results masked potentially weaker profits if oil and gas prices begin to decline.

Production on an oil-equivalent basis at Exxon Mobil's oil fields around the world declined 1 percent in 2005, excluding stoppages at platforms in the Gulf of Mexico from last year's hurricanes. This illustrates an industrywide problem: an inability to tap into the world's richest oil exploration areas in the Middle East and Venezuela because of political barriers.

"Lack of access to new reserves is the most important problem Exxon and the other large oil companies are facing," said Michael J. Economides, an influential professor of chemical engineering at the University of Houston. "It should make them paranoid about the future."

Political uncertainties in oil-rich nations, however, also worked in Exxon Mobil's favor in recent months, as concern over Iran's nuclear ambitions and tension in Nigeria and Venezuela kept oil prices high.

Crude oil prices have doubled in the last two years, driven largely by strong demand in the rising economies of Asia and in the United States, which alone consumes about a quarter of the world's oil production.

Oil for March delivery rose Monday to $68.35 a barrel, up 59 cents, in New York trading.

Part of the reason for Exxon Mobil's quarterly gains was that oil and natural gas prices were driven higher by Hurricanes Rita and Katrina; profit climbed to $10.7 billion in the quarter from $8.42 billion.

Revenue in the quarter reached $99.7 billion, an increase of 20 percent.

Some Democratic lawmakers pounced on the Exxon Mobil profit report to attack Republicans' recent willingness to give the industry additional tax incentives at a time of record profits.

"A real bill should concentrate on alternative fuels, corn and ethanol and hybrid cars and all these new technologies," said Mr. Engel, the Democratic congressman from New York.

Edmund L. Andrews reported from Washington for this article.




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