HOUSTON – Another quarter and more record U.S. profits for Exxon Mobil. Yet even as earnings surged for major producers, there were signs that Big Oil's run may be coming to an end.
Need proof? Shares of Exxon Mobil, the world's largest publicly traded oil company, floundered even as it reported third quarter income of $14.83 billion, shattering the U.S. record.
The Irving, Texas-based company has now reported back-to-back record quarters, following its $11.68 billion in profits for the April-June period.
The end of the third quarter coincided with a dramatic plunge in crude oil prices, but Exxon Mobil's revenue still climbed 35 percent to $137.7 billion, slightly higher than the gross domestic product of Algeria. When the third quarter ended on Sept. 30, benchmark crude prices were still about $100 a barrel, down 30 percent from summer highs. By the close of trading Thursday, a barrel of oil cost $65.96.
"Our integrated business portfolio, strong operational performance and financial discipline continued to allow us to capture the benefits of the commodity price environment," Exxon Mobil investor relations chief David Rosenthal said on a call with analysts. "Despite recent volatility in the financial, commodity and credit markets, the fundamentals of Exxon Mobil's business remain strong."
But investors appear to be growing increasingly anxious about its core business — finding and producing oil and natural gas.
The company, which produces 3 percent of the world's oil, said overall output fell 8 percent in the most-recent period — a disturbing trend in previous quarters and a blow for a corporation that generates more than two-thirds of its earnings from oil and gas production.
Part of the decline was due to disruptions caused by hurricanes Gustav and Ike this summer. Still, Exxon Mobil's average daily production of 3.6 million barrels of oil equivalent in the quarter was its lowest since Exxon merged with Mobil in 1999.
The company says it's spending heavily on new projects, as evidenced by a 26 percent increase in capital and exploration spending that totaled $6.9 billion in the third quarter.
"I think it's a big problem for them," said Brian Youngberg, an analyst with financial services firm Edward Jones. "Everyone expected huge earnings, but future production remains cloudy."
But this year, the profits have rolled in for oil companies everywhere.
Royal Dutch Shell PLC, Europe's largest oil company, said Thursday its third-quarter net profit jumped 22 percent from a year ago. Marathon Oil said its third-quarter profit more than doubled.
In the past week or so, BP reported an 83 percent surge in profit and ConocoPhillips said its income jumped 41 percent.
The future, however, is less promising.
An economic malaise has spread across the globe, driving crude prices down sharply and raising questions about energy demand at least into 2009. In the bigger picture, because state-run oil companies like those in Saudi Arabia and Venezuela control about 80 percent of known global oil reserves, giants like Exxon and Shell are finding new, substantial deposits of crude and natural gas increasingly sparse.
In a report Thursday, UBS Investment Research lowered its oil price forecast for next year by 43 percent to an average of $60 a barrel. "Oil markets seem to be pricing for a deep and long recession that will derail oil-demand growth this year and next," UBS noted.
Investors are worried, too.
Exxon shares traded mostly lower Thursday before closing up 40 cents at $75.05. Their 52-week range is $56.51 to $96.12.
But a drop in oil prices may not be all bad for big oil companies — or consumers, who are paying more than $1 less for a gallon of gas than they were just one month ago.
"I don't think any of these companies like prices being above $100," Youngberg said. "It creates bad press and costs go up. I think what's more important over time is getting some relative stability in commodity prices."
If one-time gains like bankruptcy settlements and spinoffs are stripped away from other companies, Exxon Mobil owns the record for the top 10 most-profitable quarters for a U.S. company, as well as the largest annual profit.
Both presidential tickets brought up Exxon profits Thursday, each charging the other with supporting policies that provide big oil companies with tax breaks. Top executives of the major oil companies have been hauled before Congress several times this year, where they were grilled by lawmakers about how profits are spent.
The American Petroleum Institute, the industry's trade association, has said Big Oil earnings are not out of line compared with earnings in other industrial sectors. For the second quarter of this year, it says, oil and natural gas companies earned 6.8 cents for every dollar of sales — only slightly above the 6.5 percent profit margin for all U.S. manufactures.
Exxon Mobil said its profit margin was 10.8 percent — or 10.8 cents on every dollar of revenue in the third quarter. The amount includes proceeds from the $1.62 billion sale of a natural gas transportation business in Germany.
Still, the organization Consumer Watchdog on Thursday named Exxon in its campaign for more regulation of energy trading markets. The group has said congressional moves for more market oversight have been blocked by the oil industry's powerful lobbying efforts.
"Consumers got credit card debt and empty wallets, while Exxon got double-digit billions," said Judy Dugan, Consumer Watchdog's research director. "Citizens deserve to be mad. They should demand that government get back in the business of protecting them from corporate greed."