NEW YORK—Exxon Mobil Corp posted a $10.89 billion first-quarter profit Thursday but still managed to disappoint investors as weak production volumes and low refining margins blunted the impact of the record-high crude prices.
The company's quarterly earnings rose 17 percent year over year and were the second-highest in U.S. history, but the results fell short of Wall Street's expectations and the its shares dropped more than 4 percent.
Benchmark U.S. oil prices averaged a record of nearly $98 a barrel during the quarter, up about 70 percent from a year earlier.
Exxon posted record earnings of $40.6 billion in 2007, with revenue higher than the gross domestic profit of Turkey, the world's 17th-largest economy. If oil prices stay above or around $100 for the remainder of 2008, the company could beat that mark.
A steep drop in profit margins for gasoline cut into Exxon's earnings as the company, like other refiners, struggled to pass on higher crude costs to customers. First-quarter gasoline prices rose 33 percent year over year in the United States—less than half crude's rise.
Exxon's oil and gas production also fell 5.6 percent in the quarter.
Chris MacDonald, portfolio manager at WHG Funds, said the production decline was "kind of shocking."
"It makes the future seem kind of dire, because this quarter they really got bailed out by high oil prices ... It kind of shows that you're at the limit of big new finds."
The company has been criticized by some analysts and investors for laying back on capital spending while going full bore on share buybacks.
Exxon spent $31.8 billion to buy back shares in 2007 while shelling out $20.9 billion for capital expenditures. In 2008 the company expects to increase its capital spending to around $25 billion.
"It seems that they are more of a share buyback machine that also happens to produce energy," MacDonald said.
Revenue of $117 Billion
The world's largest publicly traded company earned $2.03 a share in the first quarter, up from net income of $9.28 billion, or $1.62 a share, in the same period last year.
However, analysts on average had expected the company to earn $2.11, according to Reuters Estimates.
Revenue in the quarter rose to $116.85 billion from $87.22 billion last year.
Earnings from the company's exploration and production segment increased 45 percent to $8.79 billion while its refining profits dropped 39 percent to $1.17 billion.
The company said its production shortfall resulted in part from production-sharing contracts that give host countries a larger share of oil and gas produced as commodity prices rise. The decline of older fields and the loss of operations that were nationalized by Venezuela last year also hurt production.
"The question is going to come, and you always have to ask it every year: Are they seeing any acceleration in mature field declines? Because slowly the majors are beginning to see this to some degree," said James Halloran, energy analyst with National City Private Client Group in Cleveland.
Halloran said he was concerned because very little of the volume shortfall appears to be one-time items like maintenance.
Earnings at Exxon's chemicals unit dropped 17 percent to $1.03 billion.
European oil majors BP and Royal Dutch Shell earlier this week posted big first-quarter earnings gains as the crude oil surge was an even bigger boon for the companies than expected.
Exxon's record profits have made the company a target for sharp criticism from many politicians.
Sen. Hillary Clinton (D-NY), a presidential candidate, earlier this week said Exxon "made out like bandits" with their $40 billion profit in 2007. "Middle-class families are paying too much and oil companies are not paying their fair share," she said.
Shares of Exxon were off $3.96, or 4.25 percent, to $89.11 in trading on the New York Stock Exchange.
Through Wednesday's close they were down less than 1 percent this year, underperforming the Chicago Board Options Exchange's oil index, which is up more than 2 percent over the same period.
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