NEW YORK (CNNMoney.com) -- ExxonMobil, navigating declining oil prices and higher production costs industry-wide, managed to post the second highest quarterly profit of all time, dazzling investors and sending the stock to a record high.

Exxon, the world's largest publicly traded oil company and its biggest corporation by revenue, said it made $10.5 billion in the third quarter, or $1.77 per share on revenue of $99.6 billion. It was a 26 percent increase in earnings for the company, excluding a big gain last year related to restructuring in a Dutch natural gas business.

Exxon, which reported near record earnings of $10.5 billion this quarter, says increased investments in exploration and production led to a 7 percent gain in output in the third quarter.

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"They make more in one quarter than some companies that get more headlines have in market cap," said Fadel Gheit, an oil analyst at Oppenheimer. "I have been watching it for 20 years and it never fails to amaze me."

The earnings trounced Wall Street estimates. Analysts were looking for Exxon to make $9.68 billion in the quarter, or $1.59 per share, according to First Call.

Exxon (Charts) shares jumped 2 percent and set a new intraday high in early trading before giving up those gains. At midday the stock's gains stood at a little under 1 percent.

Exxon's earnings did not top its best quarter ever, which came at the end of 2005. Exxon made $10.7 billion in the fourth quarter of 2005, the most ever for any U.S. corporation.

Although oil prices were higher in the third quarter of 2006 versus the fourth quarter of 2005 and Exxon produced more crude, the costs of getting that oil out of the ground skyrocketed as oil firms raced to ramp up output, causing a huge demand for workers and equipment.

Also, the price of natural gas, which makes up about a third of Exxon's sales, was much higher in the fourth quarter 2005 following the hurricanes that devastated production in the Gulf of Mexico.

Comparing the third quarter 2006 to the same period the year prior, higher oil prices in the quarter, increased production and higher marketing margins offset lower refining margins and enabled Exxon to beat last year's results.

Crude prices hit record highs in the quarter but then sank about 20 percent from those highs. Still, prices were up about 12 percent for the quarter, on average, from a year earlier.

And earnings per share soared, topping even the amount Exxon earned in its record quarter thanks to a massive share buyback program.

Exxon said it distributed $8.9 billion to shareholders in the form of share buybacks and dividends in the most recent quarter, an increase of 30 percent from 2005.

This comes on top of the $11 billion that the company sent back to shareholders in the form of buybacks in the first two quarters, one analyst said Wednesday.

The company also said it spent $5.1 billion on capital and exploration projects in the third quarter, 15 percent more than 2005.

"Obviously, we've had a very strong quarter and have been able to increase the supply [of oil] we bring to market," said a company spokesman during a conference call.

Exxon's earnings statement offered a glimpse of where the company's future lies.

Exxon said production increases in West Africa and Abu Dhabi offset declines from maturing fields elsewhere.

The ongoing investments in exploration and production enabled the company to boost oil and gas output 7 percent in the third quarter, or by the equivalent of 270,000 barrels of oil per day (bpd).

Exxon now produces about 2.6 million bpd a day out of a total 84 million bpd produced globally. If it were a country it would be the 10th-largest producer in the world.

Oil companies have come under fire for not doing enough to boost production and bring down prices. But analysts have said most of the world's remaining oil deposits lie in areas posing political, not geological challenges such as Saudi Arabia, Iraq, Russia and Venezuela.

They have said more spending by Western oil firms would do little to boost overall production.

Notably absent from Exxon's earnings summary was any mention of production declines caused by the shutdown of BP's oil field in Alaska or a hit taken by a windfall profits tax imposed by England, although the spokesman did reference them in the conference call. Exxon operates in the North Sea and, along with Conoco, is a partner in BP's Alaska's field.

Both BP (Charts) and ConocoPhillips (Charts), which reported earlier in the week, cited the two events as a drag on earnings. BP reported earnings that fell 3.6 percent, while Conoco said its earnings edged up.

Exxon did note that, in addition to making $10.4 billion in the quarter, the company paid $26.2 billion in income, excise, and other taxes.

Royal Dutch Shell (Charts) also reported Thursday. The company said its net profit fell 34 percent to $5.9 billion but that operating profit rose, which pleased investors.

Chevron (Charts), the last of the majors to report, is set to release its earnings Friday morning.

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