NEW YORK (Reuters) – Exxon Mobil Corp (XOM.N: Quote, Profile, Research) posted a $10.89 billion first-quarter profit on 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 expectations and the its shares dropped more than 4 percent.
Exxon’s near-record profits sharpened scrutiny of the company from politicians and consumer groups, who are upset about sky-high gasoline prices at the pump.
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, such as 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.
European oil majors BP Plc (BP.L: Quote, Profile, Research) and Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research) earlier this week posted big first-quarter earnings gains as the crude oil surge was an even bigger boon for the companies than expected. Both companies had flat production during the quarter.
