Record sales boost Exxon despite 10% decline in quarterly earnings

Lofty oil prices gave Exxon Mobil Corp. record-high sales in the third quarter, but fuel prices didn’t keep pace, causing a larger-than-expected 10% drop in the oil giant’s net income, the company said Thursday.

The profit decline was the largest for Irving, Texas-based Exxon in several years, and helped trigger a nearly 4% drop in its stock price. It represented a retreat from the gushing profits of 2006, when energy companies raked in big gains from rising oil prices and cashed in at the gas pump as well.

Royal Dutch Shell, BP and others already have reported lower earnings compared with last year, and Chevron Corp. is expected to follow suit today.

Consumer advocates were unsympathetic, noting that even with the pullback, Exxon made more in three months than it did in the first nine months of 2002, the last down year before company profit took off.

“Exxon has led the pack in setting a ‘new normal’ for its profits, which ultimately come out of the budgets of carpooling moms and pensioners struggling to buy home heating oil,� said Judy Dugan, research director at the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

Exxon said its profit totaled $9.4 billion, or $1.70 a share, for the quarter that ended Sept. 30, compared with $10.5 billion, or $1.77, last year. Analysts, on average, had expected the company to earn $1.75 a share, according to a survey by Thomson Financial.

Exxon’s shares, a large component of several major stock indexes, dropped $3.49 to $88.50 and helped trigger a marketwide plunge in stock prices.

Exxon Vice President Henry Hubble wasn’t fazed by the year-over-year decline, telling analysts, “We had another good quarter, as the fundamentals of our business remain strong.�

Revenue rose to $102.3 billion, up 2.8% compared with $99.6 billion in the third quarter of 2006.

Worldwide production of oil and natural gas fell 2% during the quarter, a decline attributed mostly to international contracts that reduce Exxon’s share of production when oil prices rise as well as to the loss in May of Exxon’s Venezuelan operation, one of four heavy oil projects in which President Hugo Chavez’s government assumed control.

Earnings at the company’s core business of exploring and developing oil and gas fell 3% to $6.3 billion, brought down primarily by overseas operations.

Exxon’s fuel refining and sales business was the biggest drag on earnings. Worldwide profit from that segment declined $734 million, or 27%, from a year earlier.

Net income from U.S. operations fell $358 million, or 28%, as profit margins on fuel sales plummeted from highs in 2006 and earlier this year.

Analyst Mark Gilman, who follows Exxon for Benchmark Co., said he expected refining margins to stay comparatively low industrywide for the foreseeable future.

“The margin environment that we’ve seen over the last four years was atypical and therefore not sustainable,� he said. “Our outlook for margins in 2008 is that they will be maybe half to two-thirds what you saw in 2007.�

Even with the recent declines, profits from refining remain well above historical averages, according to figures compiled by Muse, Stancil & Co.

On the West Coast, refining profit margins averaged $22.55 a barrel, or 54 cents a gallon, through the first nine months of this year, the estimates show. Although the figure is down from 2006, it is more than 90% higher than 2004’s average of $11.76 a barrel, or 28 cents a gallon.

Also Thursday, the Alabama Supreme Court voted 8 to 1 to throw out nearly all of a record $3.6-billion verdict that the state government won against Exxon in a dispute over natural gas royalties. The court eliminated the punitive damages that made up the bulk of the award, leaving Alabama with $51.9 million in compensatory damages.

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The Associated Press was used in compiling this report.