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Tuesday, January 31, 2006 - Page updated at 12:00 AM

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Exxon posts $36.1 billion in profits, highest in U.S. history

Seattle Times news services

Exxon Mobil reported Monday it earned more money in 2005 than any company, any year, ever.

But the Texas oil company isn't bragging. Exxon took out advertisements in newspapers Monday to say its profit is relatively moderate — an unusual step for any company focused on keeping investors happy.

On the strength of energy prices that hit all-time highs last year, Exxon Mobil earned $36.1 billion, equal to the gross domestic product of Croatia.

The world's largest publicly traded oil company posted fourth-quarter profit of $10.7 billion, equal to more than $116 million per day over the last three months of 2005.

Exxon and other oil companies have benefited from unusually high market prices for crude oil, gasoline and natural gas — the result of tight supplies and high demand.

Hurricanes Katrina and Rita, which disrupted domestic production and refining last fall, contributed to those conditions and pushed prices higher.

In recent weeks, oil markets have sent prices even higher because of concern about tension between Western countries and oil-rich Iran over its nuclear program.

Exxon's earnings broke U.S. records for net income, set by Exxon, according to Standard & Poor's.

Exxon, aware that its profit could trigger a public backlash, tried to defuse critics.

"We recognize that consumers worldwide want and need reliable supplies of affordable energy," Chairman and Chief Executive Rex Tillerson said Monday in his first earnings report since the retirement of longtime CEO Lee Raymond. "Our strong financial results will continue to allow us to make significant, long-term investments required to do our part in meeting the world's energy needs."

Howard Silverblatt, Standard & Poor's senior index analyst, said Exxon's quarterly and annual profit were record highs for a public corporation. He discounted higher quarterly numbers posted in the past by Ford Motor and AT&T because they were boosted substantially by special items.

"You've got to be defensive if you're the company," Silverblatt said of Exxon. "I'm paying more for energy, it's costing me more, and I see this company making significantly large sums of money."

Exxon is massive, operating in almost 200 countries and territories; there are more than 13,000 Exxon and Mobil service stations in the United States. Analysts said the scale of Exxon, coupled with high commodity prices, helps explain the numbers. Exxon and other oil companies are likely to continue making record profits this year because oil prices are high, analysts said.

But the scale of Exxon's profit and the company's effort to downplay it brought renewed accusations that the oil industry is gouging consumers.

"They're raking in lots of money; energy prices are very high. There's a direct connection," said Tyson Slocum, director of Public Citizen's energy program. "I see a big need for a windfall-profits tax to capture at least some of these profits."

Argus Research analyst Jeb Armstrong said of the profit: "It's big. It's the biggest thing out there, and there's no ignoring it. There's a perception that they're making too much. The simple truth of the matter is that prices are set by supply and demand, and they are a price taker, not a price maker."

Most of Exxon's earnings increase came from worldwide exploration and production, which reported a 44 percent profit jump, while refining and marketing saw a 2 percent earnings rise.

The financial results pleased Wall Street. Exxon's stock rose $1.82 to close Monday at $63.11 a share.

The profit growth is in line with, if not exceeded by, those at the other big oil companies.

Last week, Chevron reported that its fourth-quarter profit was up 20 percent from the year before. Also last week, ConocoPhillips reported a 51 percent increase in fourth-quarter profit, and Marathon Oil said its fourth-quarter profit nearly tripled. Oil giants BP and Royal Dutch Shell have yet to report their profits.

Exxon prefers to put the numbers into context by comparing profit margin, or how many cents a company makes in profit on each dollar of sales. In Monday's ad, Exxon points out the oil and natural-gas industry makes 8.2 cents on the dollar, just below the food, beverage and tobacco industry, and less than half of the pharmaceutical and biotechnology industry.

The American Petroleum Institute, an industry trade group in Washington, ran newspaper ads Monday also saying oil companies' earnings per dollar of sales are below, or in line with, those of other industries.

Nevertheless, some on Capitol Hill are pushing for some form of a windfall-profits tax for oil companies. So far, Congress has resisted such efforts, with opponents saying doing so could result in less production and higher consumer prices.

Supporters of the tax say it could be imposed in a way that would encourage companies to spend more to boost energy supplies.

"I hope there's a tipping point where we might see some more support in Congress," said Sen. Byron Dorgan, D-N.D., who has been calling for a tax on oil-company profits. "You'd think that the Congress would want to stand up for the interests of consumers from time to time."

While big oil companies are making more money, executives are having a more difficult time spending their cash to increase reserves. Companies have been pushing into deeper waters and politically risky areas in a quest to find more oil. Some of the world's largest reserves are in countries that are off-limits to publicly traded oil companies.

The bulk of Exxon's quarterly profit — more than $7 billion — came from production and the company's natural-gas and power-marketing business.

Analysts said new oil and natural-gas projects in Russia, Nigeria and Qatar should help to boost production. "I think you are going to get a period of positive movement here with the start of these new projects," said Jacques Rousseau, an analyst with Friedman, Billings Ramsey Group.

A coalition of environmental and advocacy groups called Exxpose Exxon complained Monday that the company is not spending enough to develop alternative and renewable sources of energy. That complaint was echoed by some lawmakers, including Senate Minority Leader Harry Reid, D-Nev.

"Exxon needs to be reinvesting those profits in a way that is going to benefit the whole of the American public, like clean energy, for one," said Shawnee Hoover, the campaign director for Exxpose Exxon.

The company says it is funding research to "identify technologies that can meet growing energy demand and significantly reduce global greenhouse gas emissions."

Company spokesman Russ Roberts said the company believes that operating wind- and solar-power businesses are "not economic to do."

Compiled from Los Angeles Times, The Washington Post and Dallas Morning News

Copyright © 2006 The Seattle Times Company

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