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Exxon profits: Vying for a new record
Soaring crude prices could mean another blockbuster quarter for all the oil majors, if the industry can keep costs in check.
By Steve Hargreaves, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- If you get queasy at the rising price of gasoline, tune in Thursday when the world's largest company lets the world know just how much it has pocketed in the second quarter 2006.

Exxon Mobil (Charts) has been smashing corporate profit records on the back of soaring oil prices. In the fourth quarter 2005 the company reported quarterly profits of $10.7 billion, the highest ever for a U.S. company, on $88.3 billion in revenue, or $1.72 a share.

That record was mostly due to the price of crude, which soared 40 percent between the close of the fourth quarter 2004 and the end of the fourth quarter 2005.

Since then, oil prices have gone no where but up. Crude has gained 31 percent from the close of the second quarter 2005 to the end of the second quarter 2006, and has gone from trading in the low $60s during the fourth quarter of 2005 to the low $70s in the second quarter 2006.

But the costs of getting oil out of the ground have also increased, and analysts aren't looking for Exxon to set any new profit records when it reports Thursday.

The company is expected to post a profit of $9.92 billion or $1.64 per share for their fiscal second quarter, according to First Call.

Rising oil lifts all boats

Speaking about the overall industry, one analyst said oil going from $60 to $70 over the last two quarters will no doubt be good for profits.

"That's a big bump," said Steve Enger, an analyst at the investment bank Petrie Parkman & Co. "I wouldn't be surprised if the companies as a group hit new records."

Enger said investors will be paying particular attention to where oil companies are spending their money.

Enger says big oil companies like Exxon have preached fiscal restraint for so long - preferring to send extra cash back to their shareholders in the form of dividends or share buybacks - that increased spending for exploration or production, not tied to inflation, could make investors nervous.

Enger says that oil companies are performing a balancing act, weighing customer demand for lower oil prices through increased production and investor's thirst for profits.

Companies that plan on increasing production could do it by buying a smaller firm rather than drilling more themselves. Generally, smaller companies have been spending more on exploration to boost production.

"[Big oil] obviously has a ton of cash," said Neal Dingmann, a senior energy analyst at Pritchard Capital, an energy investment boutique. "I think you could see a major or two step in and make a play for these [smaller] guys."

Ducking the record

For it's part, Exxon may be relieved that people are focusing on something other than record profits.

While investors may have loved it, the company caught considerable flack from the general public for its record fourth quarter 2005, which came soon after gasoline prices hit an all time record at the pump.

Compounding matters, the Exxon gave its outgoing CEO Lee Raymond a retirement package worth nearly $400 million around the same time .

The combination of events led to a public outcry calling for restrictions to CEO pay and from lawmakers who wanted to institute a windfall profits tax on the oil industry.

Among the other majors, BP (Charts) kicked off the earnings week Tuesday, reporting a record replacement cost net profit of $6.1 billion for the second quarter.

Next up is ConocoPhillips (Charts), set to report Wednesday before the bell.

Analysts are looking for a profit of $4.5 billion or $2.81 a share, a 27 percent increase, according to First Call.

Chevron (Charts), the countries second largest oil company, is set to report before the bell Friday.

Analysts are looking for $4.9 billion in profit, or $2.21 per share, a 26 percent increase, according to First Call.

Big Oil's pain

Big oil dominates Top of page

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