Exxon Mobil posts U.S. record annual profit despite decline in 4Q results

HOUSTON -- Oil giant Exxon Mobil topped its own record for the biggest annual profit by a U.S. company last year, racking up earnings that amounted to $4.5 million an hour for the world's largest publicly traded oil company.

It reported the record net income -- $39.5 billion -- despite a 4 percent drop in earnings in the final three months of 2006, as prices for oil and natural gas fell from extraordinary levels earlier in the year.

Lower commodity prices may linger for at least the first part of 2007, even as the cost of doing business rises because of factors such as a shortage of drilling equipment and labor.

So while big players like Exxon Mobil Corp., Chevron Corp. and ConocoPhillips -- first, second and third, respectively, among integrated U.S. oil companies -- are expected to continue to rake in piles of cash, the totals aren't likely to be the eyepopping amounts of recent quarters.

"I'd say overall, if you look for earnings to decline 5 to 15 percent from the huge highs this past year, you're probably going to see most of these companies fall within that range," said John Parry, a senior analyst at energy consulting firm John S. Herold Inc.

Exxon Mobil's profits didn't go unnoticed on Capitol Hill, where one lawmaker called them "outlandish" and said oil companies have benefited too long from a Republican-backed energy policy that cheats American taxpayers.

Exxon Mobil wasn't alone among oil and gas entities posting a huge profit in 2006. On Thursday alone, three other companies -- Royal Dutch Shell PLC, Marathon Oil Corp. and Valero Energy Corp. -- also reported best-ever full-year profits. The four companies combined had earnings of $75.6 billion last year.

Last week, Houston-based ConocoPhillips said its $15.5 billion profit last year topped its previous record from 2005 by about $2 billion dollars.

Chevron is scheduled to report 2006 results Friday.

Exxon Mobil's 2006 profit beat its own previous record for a U.S. company of $36.13 billion set in 2005. Its net income for 2006 equals the approximate gross domestic product -- a measure of all goods and services produced within a country in a given year -- of countries like Ecuador, Luxembourg and Croatia.

Also notable was Exxon Mobil's revenue, which rose to $377.64 billion for the year, surpassing the record $370.68 billion it posted in 2005.

"Exxon Mobil continued to leverage its globally diverse resource base to bring additional crude oil and natural gas to market," said Rex W. Tillerson, chairman of the Irving, Texas-based company.

Exxon Mobil's record earnings followed a year of extraordinarily high energy prices as crude oil topped $78 a barrel in the summer -- driving up average gasoline prices in the United States to more than $3 a gallon. Prices retreated later in the year as crude oil supplies grew and concerns over Middle East tensions eased, among other factors.

The fourth-quarter decline reflects lower profits from Exxon Mobil's refining and marketing operations and a sharp dropoff in natural gas prices.

The results for the October-December period mimicked those of ConocoPhillips, which last week said its fourth-quarter profit fell 13 percent -- also primarily because of lower natural gas prices and refining margins. Analysts largely have predicted declines in fourth-quarter earnings for the big U.S. oil companies because of the moderation in commodity prices.

At Exxon Mobil, profit for the fourth quarter of 2006 declined to $10.25 billion from the $10.71 billion Exxon earned in the 2005 quarter -- a record quarterly profit for any U.S. public company. That best-ever showing came when the price of both natural gas and crude oil skyrocketed in the wake of hurricanes Katrina and Rita, which damaged wells, pipelines and refineries in the key energy-producing Gulf of Mexico.

The most-recent result marked the first time since the third quarter of 2002 Exxon Mobil had a year-over-year quarterly earnings decline.

Not everyone was applauding the results. U.S. Rep. Edward J. Markey, D-Mass., a senior member of the House Energy and Commerce and Natural Resources committees, said the Bush administration and the GOP-controlled Congress have consistently "stuffed energy bills full of goodies" that benefit oil companies at the expense of taxpayers.

Exxon Mobil's record profit is "the direct result of a Bush energy policy that for seven years has used every lever of the American government to tilt the scales toward satisfying the special interest demands of a single industry at the expense of the public interest," said Markey, noting the companies have not paid all royalties required of them for drilling on federal land.

Ken Cohen, Exxon Mobil's vice president for public affairs, said the company's profits are the result of billions in capital investment over long periods in a volatile industry. He also noted the company's U.S. tax obligation in the past five years was about $60 billion -- about $20 billion more than its U.S. net income for the same period.

"When we make more money in our industry, the government gets significantly more money," Cohen said.

While Exxon's earnings seemed to draw some flak in Washington, Wall Street appeared pleased. The company's shares gained 98 cents, or 1.3 percent, to close at $75.08 on the New York Stock Exchange.

Among those reporting earnings Thursday:

-- Royal Dutch Shell, the Anglo-Dutch oil company, reported a 21 percent gain in fourth-quarter earnings, buoyed in part by high energy prices. Net profit came to $5.28 billion, up from $4.37 billion. Excluding divestitures and other one-time items, Shell's earnings from oil production fell 3 percent, while fourth-quarter sales were flat at $75.5 billion. Shell's full-year earnings came to a company record $25.4 billion, up fractionally from 2005's record $25.3 billion. Its U.S.-traded shares gained $1.23, or 1.8 percent, to close at $69.48 on the NYSE.

-- San Antonio-based Valero Energy, the largest independent oil refiner in North America, reported its profit fell 17 percent in the fourth quarter on lower revenue and reduced refining margins. Valero earned $1.11 billion in the October-December period, down from $1.34 billion in 2005. For the year, Valero reported a record profit of $5.5 billion, up from $3.6 billion in 2005. Valero shares rose $1.75, or 3.2 percent, to end at $56.03 on the New York Stock Exchange.

-- Marathon, the oil producer and refiner based in Houston, posted a 15 percent decrease in fourth-quarter profit, citing lower natural gas prices, higher exploration expenses and a decline in refining margins. Net income was $1.08 billion, down from $1.27 billion in the 2005 period. Its full-year net income was $5.23 billion, up from $3.03 billion a year earlier. Marathon shares gained 57 cents to close at $90.91 on the NYSE.

-- Apache Corp., another Houston-based oil and gas producer, said fourth-quarter profit plummeted 34 percent as natural gas prices dropped off sharply. Net income declined to $519.4 million from $786.8 million in the year-earlier quarter. Earnings for 2006 dipped to $2.55 billion from $2.62 billion in the prior year. Its shares slipped $1.40, or 1.9 percent, to close at $71.57 on the NYSE.

AP Business Writer Lauren Villagran in New York and Associated Press Writers Toby Sterling in Amsterdam, Netherlands, and Michelle Roberts in San Antonio contributed to this report.