Oil firms must turn profits into good will

DALLAS — Exxon Mobil Corp. didn’t quite meet Wall Street’s expectations by reporting an $8.4 billion quarterly profit Thursday.

That tidy first-quarter sum, coupled with soaring gas prices, is still enough for lawmakers to draw another set of battle lines that will have the company defending its profits, however.

CEOs from Exxon and its industry peers have already appeared twice at Senate hearings and were asked to justify their profits shortly after reporting them to shareholders.

Kenneth Cohen, Exxon’s vice president of public affairs, says he’s bracing for another round of trips to Washington that followed record third and fourth quarter reports.

“I think we are going to be very busy based on everything I hear, everything I read,” Cohen said. “I just hope for the opportunity to communicate the fundamentals of our business.”

There’s the rub.

Lawmakers believe the profits are made on the backs of consumers who are paying a national average of $2.91 a gallon — 68 cents more than last year.

Exxon says a strong commodities market combined with fortuitous planning and prudent management are producing record numbers.

Additionally, the company says its earnings reflect global operations, not just the United States. Of the $8.4 billion profit, Exxon earned $2.3 billion domestically, Cohen said.

Regardless of the profit venue, Exxon turned in its best first quarter in the company’s history and analysts say there is more to come.

“This is only the beginning,” said Fadel Gheit, analyst for Oppenheimer & Co. “Let me tell you, it gets better after that. Oil prices will add huge amounts to earnings, at least a billion dollars.”

In the first quarter, net income rose 7 percent to more than $8 billion, or $1.37 per share, from $7.86 billion, or $1.22 per share, a year ago. Roughly three-quarters of that profit came from the company’s upstream division, which produces oil and natural gas.

Analysts polled by Thomson Financial were looking for a higher profit of $1.47 per share for the latest quarter.

In January, Exxon posted the highest quarterly profits of any public company in history: $10.71 billion for the fourth quarter of 2005 and $36.13 billion for the full year.

Howard Silverblatt, a senior index analyst for Standard & Poor’s, said the latest profit figure still places Exxon fifth historically among quarterly earnings. Exxon also holds the first, second and fourth spots; Royal Dutch Shell PLC has the third spot.

Lawmakers seem to direct most of their energy sector ire toward Exxon because of the enormous numbers.

New Jersey Democrat Robert Menendez weighed in before Exxon completed its conference call with analysts Thursday morning.

“While Exxon Mobil executives are popping champagne and celebrating their record profits, American families are popping antacids under the strain of soaring gas prices,” Menendez said.

Analyst and industry executives have said that lawmakers are taking advantage of 2006 being a mid-term election year. Additionally, Cohen says lawmakers don’t understand how Exxon reaps returns from projects that began in the early to mid-1990s, not just spot commodity increases.

He cited a West Africa project, known as Kizomba, which came online last year, and is producing 500,000 barrels a day.

“They need to take into account the long-term nature of what we go through to find, develop and produce energy,” Cohen said. “Kizomba took us 12 years. That’s three presidential administrations, two senatorial terms and six congressional terms.”