Pumped-up profits keep flowing for oil companies

DALLAS — The Exxon Mobil profit machine clocked in at $4.7 million per hour in the April-June period as soaring oil prices and higher output boosted its performance by 36 percent from a year ago.

The company's $10.4 billion second-quarter profit, announced Thursday, was the second-best quarterly performance ever for a publicly traded company, drawing praise from Wall Street and ire from consumer groups and some politicians.

Royal Dutch Shell accelerated its second-quarter earnings even faster, posting net income of $7.3 billion after an increase of 40 percent from the year before.

Crude-oil prices are hovering near $75 a barrel, and analysts do not foresee a sharp drop anytime soon given the world's rising appetite for fuel and supply threats in the Middle East, Africa and beyond that pump fear into the market.

As long as the global economy keeps chugging along, analysts say the industry can expect more record-breaking profit throughout the remainder of the year.

But the oil and gas industry's profit surge comes as motorists in the U.S. pay an average of $3 a gallon at the pump and as Washington lawmakers consider opening to drilling areas of the Gulf of Mexico currently off-limits — both of which have generated political backlash.

Other major oil companies reported big numbers for the quarter this week as well.

BP said its quarterly profit rose 30 percent to $7.3 billion. ConocoPhillips said its earnings rose 65 percent to $5.18 billion. Chevron reports its quarterly results today.

These five were expected to earn an estimated $33.6 billion, or a 32 percent boost, according to analysts surveyed by Thomson Financial. But the first four have already reported earnings of more than $30 billion — a jaw-dropping surprise even for optimistic Wall Street analysts.

Exxon Mobil executives said their success was based on a pretty simple formula: Produce more fuel and command higher prices for it.

"We continue to see demand growth year over year," Henry Hubble, Exxon's vice president of investor relations, told analysts. "We're selling everything we can make."

The company, a direct descendant of John D. Rockefeller's mighty Standard Oil, last year became the first in U.S. history to top $100 billion in revenue in a single quarter — a benchmark set in the third quarter.

Hurricane Katrina, which played havoc with oil production and refining along the Gulf Coast, was the catalyst then, pushing crude and fuel prices to record highs.

Last year's records have since become the norm, with geopolitical jitters over possible disruptions to supplies keeping gasoline at $3 a gallon while cargoes of spot crude oil are routinely shipped to refiners around the world at the lofty price of $70 a barrel.

Meanwhile, Exxon Mobil's performance was roundly booed by consumers smarting from high gasoline prices and politicians eager to curry their favor.

"Americans are paying near-record gas prices, oil companies are reaping billions in profit, but the response from the oil men in the White House and the Republicans in Congress has been billions for big oil and a backhand to the American people," Sen. Harry Reid, D-Nev., said in a statement.

"It would be shocking in normal times, but it is standard procedure for Republicans in Washington," he added.

The criticism was relatively muted, however, compared to the public outrage last fall following the huge spike in gas prices after hurricanes Katrina and Rita. The combination of soaring prices at the pump and record profit by the industry prompted Congress to summon the heads of the biggest oil companies to Washington to explain their runaway profit.

As has been the case every time gasoline prices skyrocket, a subsequent congressional investigation of the industry found no evidence of illegal profiteering.

"Although our company benefits from these conditions, we do recognize the impact today's high energy prices have on consumers and family budgets," Hubble said.

He said Exxon is investing in projects to bring more fuel supply to market to relieve high prices.

That didn't satisfy members of a group called Exxpose Exxon, which urges consumers to boycott Exxon-branded stations. They held their own news conference Thursday, and called on Exxon to cut gasoline prices and offer renewable fuels.

"I know that people I talk to think, 'They've got us, there's nothing we can do.' And you're naturally going to find a backlash from that," said David Hamilton, global-warming and energy director for the Sierra Club, which supports Exxpose Exxon.

Exxpose Exxon says its membership has swelled to 500,000 during the past year as regular folks become frustrated with the oil industry.

However, the path of Exxon profit is complicated; there's no straight line from your wallet to corporate headquarters. Even Exxpose Exxon supporters admit that their campaign to boycott the company is more symbolic than financially effective.

Most of the company's profit comes from so-called upstream operations, or oil and natural-gas exploration and production, not from selling gasoline. In the second quarter, upstream profit rose 45 percent to $7.134 billion.

The company produced more crude oil and natural gas this year compared with last. And it did so during a quarter when the oil market rose above $75 a barrel.

But here's where things start to get complicated: Exxon actually buys more crude oil than it sells.

The company doesn't just ship its own crude oil to its own refineries. Sometimes it's cheaper — and profitable — to sell the crude at the well location, and buy crude close to the refinery. Exxon has an entire business department devoted to making such decisions.

But the higher fuel prices this year still boosted Exxon's refining and market earnings. Downstream profit rose to $2.485 billion.

"The fact is, there is a direct connection between the record high prices Americans are paying and the high profits," said Tyson Slocum, energy director for Public Citizen, which supports the Exxpose Exxon campaign.

Congress has been urging the big oil companies to put more of their profit toward boosting the supply of energy for consumers. And this week the Senate sought to help out the industry by working on a bill that would open a large area of the central Gulf of Mexico to oil and gas drilling.

By a vote of 86-12, the Senate agreed Wednesday to proceed with the legislation that opponents fear could clear the way to lifting a federal drilling moratorium that has protected 85 percent of the country's Outer Continental Shelf from New England to Alaska for a quarter-century.

Hubble told analysts that Exxon will boost capital spending from the previously stated $19 billion by another $1 billion this year, though one-third of that increase is tied to rising costs for labor and equipment.

However fast industrywide costs are rising, they cannot seem to keep up with the price of oil.

Compiled from The Associated Press, MarketWatch and The Dallas Morning News