Exxon Mobil shatters US record for annual profit

Despite an unprecedented collapse in world energy markets, Exxon Mobil Corp. and Chevron Corp. performed better than expected in the fourth quarter and rode the wave of record-high oil prices long enough to post their biggest annual profits ever, the companies said Friday.

But it was the oil-price plunge, which accelerated in the fourth quarter, that set the stage for the rest of 2009, and perhaps beyond, energy experts said.

The oil industry could be rocked by consolidations and outright failures as debt-laden companies find credit too expensive to obtain. The industry could face a prolonged period of relatively cheap oil in which demand continues to trail supply, in part because of the continuing global recession.

“We are moving from a period of success and bounty in the oil industry to one of the survival of the fittest,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co., who did not see a return any time soon to oil’s all-time high of $147.27 a barrel set in July.

“There are a lot of companies that will not be able to stay in business unless oil prices turn around. It’s a new game now.”

Gheit described Exxon as a company with “unparalleled financial flexibility.” Exxon, with a huge cash hoard, has “legacy assets and economies of scale that put them head and shoulders above their peers,” he said.

Gheit said that Chevron fared even better, and that the San Ramon, Calif., company would be well positioned to build strength once the global economy recovers.

“In the next five years, they have several oil projects coming online that will make them even more of a powerhouse,” Gheit said.

Exxon’s fourth-quarter net income fell 33% to $7.8 billion, or $1.55 a share, from $11.7 billion, or $2.13, in the year-earlier quarter. Revenue for the Irving, Texas, company fell 27% to $84.7 billion.

Chevron earned $4.9 billion, or $2.44 a share, in the quarter, up from $4.88 billion, or $2.32, a year earlier. But revenue fell 26% to $45.2 billion.

Both companies exceeded analysts’ expectations with a boost from refining profits that helped soften the drop in oil prices.

Consumer activists accused the oil giants of making the recession worse.

“Consumers left deeper in debt by 2008’s record price gyrations for gasoline and heating oil now find that their money landed in the pockets of Exxon and Chevron,” said Santa Monica-based Consumer Watchdog.

For the full year, Exxon netted $45.2 billion, ranking it higher in terms of gross domestic product than all but about 75 of the world’s nations. It also broke the $40.6-billion standard that it set for U.S. company earnings in 2007.

Chevron’s $23.9-billion profit for 2008 was also a company record.

And at a time when some energy firms are cutting 2009 capital spending by as much as 50%, Chevron says it will maintain its spending at 2008 levels.

Exxon Chairman Rex W. Tillerson has said that his company may increase capital spending in 2009 by more than 20% over 2008 levels.

This comes despite a slump in oil prices that some experts see lasting awhile.

“We are entering what could be a fairly prolonged period of lower oil prices,” said James L. Williams, publisher of the newsletter Energy Economics.

But others see new pressures that could drive oil sharply higher in a hurry. For example, a recent agreement by the 168-member International Maritime Organization to limit pollution from the world’s oceangoing vessels would end the use of bunker fuel, a sludgy substance that is the dirtiest of transportation fuels, in favor of cleaner-burning diesel alternatives.

Although no clear timetable for the switch has been set, oil companies may be unable to meet demand because they have slashed spending.

“The demand for light sweet crude oil will go through the roof [because] the world’s refining capacity to produce such fuel from sour, high-sulfur oil is very limited,” said energy economist Philip K. Verleger Jr., a professor at the University of Calgary’s Haskayne School of Business. “We are setting ourselves up for enormous difficulties if we do not prepare.”

Exxon shares fell 52 cents to close at $76.48. Chevron slipped 10 cents to $70.52

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ron.white@latimes.com