THE BUSINESS (EU): ExxonMobil beats world record with $24bn profit: “Anglo-Dutch group Shell also reports this week, with the stock markets attention focused on further downgrades to its proven reserves of oil and gas, rather than profits.” (ShellNews.net) 30/31 Jan 05

By Richard Orange

AMERICAN oil giant ExxonMobil will on Monday wrest from Ford the record for the largest annual profit made by a public company - more than $24bn (£13bn, €19bn). The profit, the latest in a series of spectacular results from the oil industry, will raise concerns that the world's oil giants, while reaping the rewards of unprecedented high oil prices, are failing to invest enough in replacing oil and gas reserves.

But on Saturday, the oil industry showed its determination to access new reserves as all the big US and European oil companies, Indian, Chinese and Malaysian national oil companies, and a host of smaller firms, crowded Tripoli's Mehari Hotel to put in bids for 15 Libyan exploration areas.

Libya is one of the few new opportunities for US and UK oil companies. Sanctions were lifted last year after Libyan leader Colonel Muammar al-Qaddafi struck a deal on the dismantling of his weapons of mass destruction.

ExxonMobil is expected to report profits of at least $24.3bn, comfortably clear of the $22.1bn the Ford motor company made in 1998. ExxonMobil became the world's most profitable company in the Fortune 500 in 2001, when the oil price began its climb to recent $50 per barrel highs, but last year the oil giant fell short of Ford's record, with a net income of $21.5bn.

An Exxon spokesman downplayed the achievement: "Our focus is on maximising return to shareholders, we don't seek to make comparisons outside our competitors." But the news is bound to stoke protests against the company, whose refusal to follow BP and Royal Dutch/Shell in courting environmental activists has made it the focus of global "Stop Esso" campaign.

Anglo-Dutch group Shell also reports this week, with the stock markets attention focused on further downgrades to its proven reserves of oil and gas, rather than profits. CSFB expects Shell's results to be second only to Exxon's in the oil industry, at a record $17.6bn. The company has promised an update on its reserves-checking process ahead of a definitive statement in its 2004 annual report.

Investors are still shaken by last year's huge downgrading of its proven reserves by 23% to 4.47bn barrels, and the group further unsettled analysts in October by warning that it had identified 900m more barrels of oil equivalent that might need to be downgraded. Because this followed a review of just 55% of its oil and gas fields, it raised more fears with investors that the additional downgrade may be proportionally larger.

But The Business understands this is unlikely. "Thankfully, that is not the case," a Shell source told the trade publication Petroleum Intelligence Weekly. "The final number is likely to be 900m barrels of oil equivalent... a little bit less." The extra downgrade could rise beyond Ibn barrels of oil equivalent if the source was unaware of Shell's 142m share of a downgrade to its Canadian arm's bitumen reserves at Peace River, announced last week.

Results last week from US oil giants ConocoPhillips and ChevronTexaco indicated that the oil industry has made even more money over the past three months than analysts expected. Jacques Rousseau, an analyst at Friedman, Billings, Ramsey, said: "The results are coming in better than we thought. What we heard from Chevron was that Asia-Pacific was a big area for profits with the refining margins there. Some of that upside should roll over to Exxon. Chemicals is another area where you should see strength."

CSFB analysts estimate that the oil price averaged $41 for the year, up 55% compared with 2003, itself a bumper year, and averaged as high as $48 over the

past three months.

Refining margins were up 87% year-on-year outside the US for the year and up some 23% inside the US.

Fadel Gheit at Oppenheimer believes 2005 could be even stronger. He said: "We think ExxonMobil's 2005 earnings could exceed the 2004 record. We expect oil and gas prices to remain inflated this year, and probably in the next four years, until we have a regime change in Washington."

Others fear that the oil price may continue to ebb, while rising costs and the industry's struggle to increase its oil and gas production and replace its reserves may start to overshadow the impact of high oil prices.

Last week, Chevron reported that its oil production had shrunk 8.5% on 2003 and it is expected to have had zero reserves replacement. Conoco similarly saw just 60%-65% reserves replacement, well below the 100% an oil company needs to avoid shrinking. CSFB expects Exxon's oil and gas production to fall about 2% on 2003.